Revisiting Regional Growth Dynamics in India in The Post Economic Reforms Period

Revisiting Regional Growth Dynamics in India
in the Post Economic Reforms Period

Revisiting Regional
Growth Dynamics in
India in the Post
Economic Reforms Period
Biswa Swarup Misra
Professor and Acting Dean, Xavier Institute of Management,
Bhubaneswar, Orissa, India
© Biswa Swarup Misra 2013
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Dedicated to the Lotus Feet of Lord Jagannath
Contents
List of Illustrations xi
Preface xiii
Foreword xiv
Acknowledgements xvii
List of Abbreviations xix
1 Introduction 1
2 Key Challenges 6
2.1 Macroeconomic management 7
2.2 Centre–state and inter-state relations 13
2.3 Game-changer initiatives 18
2.4 Conclusion 23
3 Growth Performance 27
3.1 Growth performance 30
3.2 Sectoral growth performance 42
3.3 Sectoral contribution to growth 49
3.4 Variability of output 50
3.5 Contribution of states to growth in GDP and
population 52
3.6 Conclusion 54
Annex 3.1 Data Issues 57
Annex 3.2 Sectoral growth 2000–3 58
Annex 3.6 Sectoral shares 2000–3 66
Annex 3.10 Share of states in combined SDP and
population 74
Annex 3.11 Contribution to growth in combined
output and population 76
vii
viii Contents
Annex 3.12 Variability in sectoral output 78

Annex 3.13 Sectoral contribution to growth 80
4 Income Inequality 81
4.1 Consumption-based inequality 82
4.2 Behaviour of per capita income 85
4.3 Inequality measures 91
4.4 Convergence amongst Indian states 99
4.5 Conclusion 109
Annex 4.1 Estimates of absolute convergence
behaviour in cross-section and panel
dimension 111
5 Infrastructure and Growth 112

5.1 Approach to provision of infrastructure 113
5.2 Recent initiatives for infrastructure push 116
5.3 Infrastructure index 118
5.4 Infrastructure index – Relative position of states 123
5.5 Infrastructure and growth 125
5.6 Conclusion 130
Annex 5.1 Causality between social and economic
infrastructure for general category states 131
Annex 5.2 Causality between social and economic
infrastructure for special category states 132
Annex 5.3 Causality between growth in SDP and
growth in economic infrastructure for GCS 133
growth in social infrastructure for GCS 134
growth in overall infrastructure for GCS 135
growth in economic infrastructure for SCS 136
growth in social infrastructure for SCS 137
growth in overall infrastructure for SCS 138
Annex 5.9 Overall Infrastructure Index – General
category states (2001–10) 139
Annex 5.10 Overall Infrastructure Index – special
category states (2001–10) 146
Contents ix
Annex 5.11 Infrastructure Index with qualitative

dimensions for general category states
(2004–10) 150
Annex 5.12 Infrastructure Index with qualitative
dimensions for special category states
(2004–10) 154
6 Health and Growth 157

6.1 Review of the literature 160
6.2 Stylised facts 162
6.3 Empirical methodology 174
6.4 Results 179
6.5 Concluding observations 184
Annex 6.1 Panel unit root tests 185
Annex 6.2 Panel cointegration tests 186
7 Credit and Growth 187

7.1 Growth of credit and credit allocation
across sectors 189
7.2 Credit–output growth at the state level 193
7.3 Shares of different sectors in
credit and output 198
7.4 Methodology and empirical results 201
7.5 Conclusion 204
Annex 7.1 Credit-SDP growth 2001–4 206
Annex 7.5 Sectoral shares in credit and
output 2001–4 214
output 2005–8 215
output 2009–11 216
output 2001–11 217
Annex 7.9 Panel unit root tests – general
category states 218
Annex 7.10 Panel unit root tests – special
category states 219
x Contents
Annex 7.11 Panel cointegration tests 220

Annex 7.12 FMOLS estimates of responsiveness
between credit and output 221
Notes 224
Bibliography 226
Index 241
List of Illustrations
Tables
3.1 Growth of the Indian economy 30

3.2 Growth of GSDP, population and
per capita GSDP 32
3.3 Ranking of states based on level and
growth per capita SDP 40
4.1 Per capita state income 2000–12 86
4.2 Ranking of states 2000–12 88
4.3 Coefficient of concordance 2000–12 90
4.4 Index of rank concordance 91
4.5 Inequality measures 92
4.6 Gini decomposition by income sources 96
4.7 Select convergence studies for Indian states 100
4.8 Absolute convergence scenario across
states and sectors 104
4.9 Fixed effect estimates of convergence 105
4.10 Steady-state income of states 2005–12 107
4.11 GMM estimates 107
4.12 Speed of convergence during 2001–12 108
5.1 Infrastructure index – alternate methodologies 120
5.2 Infrastructure index – quantitative dimension 124
5.3 Infrastructure index – qualitative dimension 126
5.4 Impact of infrastructure on growth 128
5.5 Causality between growth in output and
growth in infrastructure 129
6.1 Progress in health care availability 164
6.2 Share of health related expenditure in SDP 166
6.3 CAGR of health expenditure and SDP 168
6.4 Responsiveness of health expenditure and
IMR to SDP 181
6.5 Panel causality tests 182
6.6 FMOLS estimates of health expenditure, health
outcome and SDP 183
7.1 Growth of output and credit 190
xi
xii List of Illustrations
7.2 Average shares of major sectors in output and

credit 2001–11 191
7.3 Growth and share of components in
services 2001–11 192
7.4 Responsiveness of output to credit and credit to
output – alternate estimates 203
7.5 Causality results between output and credit 204
Figures
4.1 Evolution of Gini coefficient – GCS 93

4.2 Evolution of Gini coefficient – SCS 94
4.3 Scheme of convergence analysis 101
4.4 Sigma convergence – GCS 102
4.5 Sigma convergence – SCS 103
6.1 Scatter plot of health expenditure and IMR – GCS 171
6.2 Scatter plot of HE and IMR – SCS 174
Preface
This book is a sequel to Regional Growth Dynamics in India in the Post

Economic Reform Period, published in 2007, which discussed certain
dimensions of the growth process during the period 1981–2004. It
was divided into two sections, 1981–93 and 1994–2004, broadly corre-
sponding to the pre- and post-reform periods. The present book covers
the post-2000 period (2000–12), which has been witness not only to
spectacular growth during 2004–8 but also to two major crises of our
time – the global financial crisis and the sovereign debt crisis. While
robust growth during 2004–8 had created hopes about India’s assuming
a larger role in the global scene sooner rather than later, the post-crises
growth experience has caused much of that enthusiasm to wane. While
structural growth drivers of the Indian economy remain intact, India’s
growth has been languishing. The poor growth is a reflection of the
unfinished reform agenda that has been on the table for quite some
time. It is now widely agreed that growth is the best antidote to poverty,
and that reviving growth is the topmost priority for the government.
How quickly the government will be able to revive entrepreneurial
spirits to put the economy back into acceleration mode will be closely
watched in both national and international circles.
The policy focus in the post-2000 period has been to make the growth
process more inclusive. The inclusive nature of growth can be ascer-
tained by examining it at a more disaggregated level. This book studies
facets of the growth process at the level of India’s states. In addition
to growth, the performance of the states has been analysed in a host
of dimensions, such as inequality, infrastructure, health and credit.
The post-2000 period has been divided into three sub-periods: 2000–3,
2004–8 and 2009–12 – respectively corresponding to phases of relatively
low growth, high growth and the post-crisis period.
The present book has taken up three new themes – challenges for
growth, infrastructure and health – not addressed in the earlier book,
replacing chapters on state finances, regional rural banks and agricul-
tural growth.
It is my hope that this book will help promote better understanding of
the growth process in India.
xiii
Foreword
In the years before the crisis, India’s growth story was making headlines,
both within and outside the country. During the three years prior to the
crisis, an average growth of 9.5 per cent made India the second-fastest
growing economy of the world after China. Growth has, however,
moderated significantly since 2011–12 due to both global and domestic
factors, raising some questions on India’s growth story. While the focus
of most analysis with regard to the change in drivers of growth has been
on the macro parameters, regional dimensions also play an important
role in driving growth, particularly inclusive and sustainable growth,
as envisaged in the 12th Five-Year Plan. It is in this context that this
book on ‘Revisiting Regional Growth Dynamics’ could be a good guide
to better understand the states’ participation in the growth process as
well as the state-specific drivers of growth for the 2000 to 2012 period.
Maintaining a sustainable, inclusive and high rate of growth is a chal-
lenge, especially when the Indian economy has developed strong inter-
linkages with global economies and is affected by ripples from the
tremors of global financial market developments. The challenge is further
compounded due to the existence of regional inequalities and to the forces
that shape centre–state and state–state relations, which at times act as
headwinds to the policy-implementation process. The last two Five-Year
Plans have focused on reducing regional inequalities with sub-national
governments playing a more crucial and proactive role in ensuring effec-
tive delivery of services. Such an approach would enable not only higher
levels of sustainable growth but also, as the author has put it, ‘harmonious
growth’. This book, authored by Biswa Swarup Misra, analyses some of the
key inputs/game-changing initiatives in the path of ‘harmonious growth’,
the impediments associated with these inputs (particularly in a regional
perspective) and the challenges faced by the policymakers in providing
these inputs. The author has also focused on three key inputs to develop-
ment at the regional level: economic, social and financial infrastructure.
Large infrastructure investments by all sectors – public, private and
foreign – had catapulted India, during the 2000s, to become one of the
fastest-growing economies in the world. Yet, over the past few years, the
infrastructure sector has reached a critical point of entanglement. Whether
this is a cause for, or a consequence of, low growth is open for debate.
To stimulate growth, there is an urgent need to step up infrastructure
xiv
Foreword xv
investment as well as to improve the productivity and quality of infrastruc-

ture spending, remove procedural bottlenecks and improve governance.
The projected investment requirements for infrastructure are placed at
about $1 trillion in the 12th Five-Year Plan. Given the limited fiscal space
available in the public sector, a large part of the infrastructure investment
requirements would have to be met through funding from the private
sector. Public–private partnerships (PPPs) in infrastructure would have to
play a greater role given its huge level of overall acceptance and use in
India. As quite a few of the infrastructure-related subjects such as roads,
water, education and urban infrastructure come under the purview of the
state and the urban local bodies, the performance of various states vis-à-vis
their infrastructure availability could have useful policy implications. In
this book, the author has constructed infrastructure indices across states
using an innovative weighting pattern to examine the importance of
economic and social infrastructure.
India’s demographic dividend presents the country with a great
opportunity to enhance its growth and seek convergence of per capita
incomes with that in the developed world. The median age for India’s
population is about 27 years compared with over 40 years for most OECD
economies. India will add significantly to its labor pool and, even as the
median age rises, it will still be at a relatively young 30–34 age bracket
by 2026. There is thus a need to nurture and preserve this demographic
advantage by investing in human capital, particularly in providing key
services, such as health and education, that can help create the right jobs
that will lead to improved standards of living and inclusive growth. The
author incorporates a very useful chapter on one of these key inputs to
human capital, that is, health, and explores its relationship to growth,
both at the macro as well as the regional level. At present, the combined
spending of central and state governments in India on the social sector
in general and the health sector in particular, is quite low vis-à-vis inter-
national standards. Further, during periods of low growth, there is often
a tendency to compromise on social sector spending as the benefits are
not very visible. If India needs to profit from its demographic dividend,
it is imperative to step up considerably its public spending on education
and health. An important debate that has emerged in this context is
with regard to the choice of strategy – the typical Sen versus Bhagwati
debate – that is, whether growth through ‘trickle-down’ is more effective
than direct state intervention in terms of higher social sector expendi-
tures and targeted programmes. This book further enlightens us with
regard to this debate by showing that regional variations can to some
extent explain the relevance of each strategy.
xvi Foreword
Recognising the important role that banks have played in supporting

the growth process of the economy during 2000s, the book also focuses
on the evolution of the credit–growth relationship, particularly in a
regional and sectoral perspective. Bank credit that was growing at above
28 per cent annually the crisis has moderated significantly to an average
of about 15 per cent in 2011–12 and 2012–13, in line with overall slow-
down in the economy along with enhanced risk aversion associated
with deterioration in asset quality, particularly in the infrastructure
sectors. The book analyses the credit output relationship at the aggre-
gate as well as sectoral levels, both analytically and empirically, and
arrives at some interesting conclusions about whether credit leads to
growth or vice versa – conclusions that could be of relevance to bankers
and policymakers. The book concludes that increasing the flow of credit
to any particular sector without generating adequate growth and neces-
sary absorptive capacity could adversely affect the asset quality of bank
credit. This is particularly observed by the author for the agricultural
sector.
On the whole, the author analyses the importance of various deter-
minants of growth, in a regional perspective, by adopting a blend of
analytical rigour and econometric techniques to understand the progress
of India – progress made and progress to be made. The book, to my
understanding, succeeds in covering the complex and diverse economic
landscape of India and the dynamic challenges confronting the policy-
makers. The book will no doubt benefit the policymakers, practitioners
and students of economics in developing a better understanding of
the drivers of Indian economic growth, which needs to be sustainable,
inclusive and fast-paced.
Harun R. Khan
Deputy Governor
Reserve Bank of India
Mumbai
Acknowledgements
I am grateful to my employer, Xavier Institute of Management,

Bhubaneswar, for its excellent working conditions and research atmos-
phere. I owe deep gratitude to Fr. Paul Fernandes, director, Xavier Institute
of Management, for nurturing my research interests and providing a
wonderful research environment and the state-of-the-art infrastructure
facilities.
My sincere gratitude to Fr. P.T. Joseph, Fr. E. Abraham, Fr. P.D. Thomas,
Fr. Charles Pereira, Fr. E.A. Augustine, Fr. Donald D’Silva, Fr. Tony Uvary
and Prof. Subhajyoti Ray for their understanding, encouragement and
appreciation of my work and for extending the moral support and
comfort at the workplace.
I am grateful to Prof. Nawal Kishore Chaudhary for his guidance,
support and encouragement. While working on this project, I have bene-
fited immensely from my interactions with Shri Akshya Kumar Panda,
Director, Planning Commission of India. I am grateful to Prof. K.L. Krishna,
Prof. A.K. Mohanty, Prof. K.R. Shanmugam and Prof. Brajraj Mohanty for
their valuable advice on different occasions. All of them were available on
call for discussion, debate and arguments despite their hectic schedules.
I am equally grateful to my teachers who have been more than eager in
extending the liberty to disturb them at my own will.
Discussions with Shri B.A. Prabhakar, CMD, Andhra Bank, Shri
Ramesh Kolli, Shri Bijay Pratap Singh, Shri Tushar Kanti Panda,
Shri B.L. Vageesh, Shri A. Srinivas and Shri Ramakrishna Regulagedda on
different occasions have been quite enriching. I would like to thank the
editorial team of Business Line for carrying my pieces on contemporary
macroeconomic themes of India and the readers of this business daily
for their comments.
I am thankful to Shri Dayanidhi Mishra, who provided active coopera-
tion while working on this project.
Thanks are due to my friends Satyabrat Pradhan, Dr. Bishwa Prakash
Pati, Dr. Sameer Behera, Shri Amitabh Khuntia and Lala Susnata Ray for
their timely help on many occasions and for sharing lighter moments.
They have been a constant source of strength.
xvii
xviii Acknowledgements
I am thankful to my students – Amit, Prateek, Pratik, Shubhodeep,

Shradha and Sourav – for reading through the different chapters of the
book and giving their suggestions.
I take this opportunity to thank Shri Jit Narayan Prasad Singh, who
has always encouraged me in my academic pursuits.
I am grateful to the numerous readers of the previous book who have
provided very encouraging feedback which prompted me to work on
this sequel.
I owe a great deal to Taiba Batool, senior commissioning editor of
Palgrave Macmillan and her entire team, who have been instrumental
in the smooth completion of this work. I am grateful to Ms. Vidhya
Jayaprakash for handling the copyediting of the manuscript.
I am grateful to Srinivas Misra, my father and role model. He has been
a constant source of encouragement and inspiration in all my efforts.
He takes more interest than I do in my academic pursuits and keenly
follows my academic engagements. He acts as the sounding board for
my research ideas. As a voracious reader, himself, he has inculcated in
me the habit of reading. His thoughts to a great extent have also influ-
enced my worldview. I take this opportunity to thank my sisters, Kalyani,
Basanti, Pratima and Prativa, and my brother, Satya Swarup, who have
always been affectionate and encouraging. I am equally grateful to Shri
Rabindra Kumar Dash, my father-in-law for encouraging my academic
pursuits.
I have benefited from interactions with Prof. Rama Shankar Rath, Shri
Anantaram Mishra, Prof. Suman Mahapatra, Shri Amitabha Sadangi,
Shri Ramaknata Mishra and Shri Sudhansu Sekhar Dash, whom I truly
adore.
Above all, I am indebted to my wife, Lipi, for graciously enduring a
perpetually distracted husband, his nocturnal working hours, and the
sight of open books scattered all around the house. She has been highly
patient in her disposition and has sacrificed her comforts to accommo-
date my demanding time schedules.
This long list of people who have been instrumental in one way or
other would remain incomplete without the mention of five-year-old
Gaurav, who is a live wire and whose tender smiles create a cheerful
atmosphere at home.
List of Abbreviations
A&N Islands Andaman and Nicobar Islands

ADF Augmented Dickey Fuller
ALM Asset and Liability Management
ARC Administrative Reforms Commission
BC Banking Correspondent
BDI Backward Districts Initiative
BF Banking Facilitator
BOLT Build Own Lease Transfer
BOO Build Own Operate
BOT Build Own Transfer
BPLR Benchmark Prime Lending Rate
BRGF Backward Regions Grant Fund
CAD Current Account Deficit
CAGR Compound Annual Growth Rates
CCI Cabinet Committee on Investment
CFI Committee on Financial Inclusion
CHCs Community Health Centres
CMIE Centre for Monitoring Indian Economy
COI Committee on Investment
CSO Central Statistical Office
EBT Electronic Benefits Transfer
ECBs External Commercial Borrowings
ECM Error Correction Mechanism
EU European Union
FAO Food and Agriculture Organisation
FDI Foreign Direct Investment
FE Fixed Effects
FIIs Foreign Institutional Investors
FMOLS Fully Modified OLS
FRL Fiscal Responsibility Legislation
GCS General Category States
GDP Gross Domestic Product
GER Gross Enrollment Ratio
GFCF Gross Fixed Capital Formation
GMM Generalised Method of Moments
GoI Government of India
xix
xx List of Abbreviations
GSDP Gross State Domestic Product

GST Goods and Services Tax
HLEG High Level Expert Group
ICOR Incremental Capital Output Ratio
ICRIER Indian Council for Research in International Relations
IMR Infant Mortality Rate
IPS Im, Pesaran and Shin
ISC Inter-state Council
JK Jammu and Kashmir
LLC Levin-Lin-Chu
LM Lagrange Multiplier
LR Likelihood Ratio
LSDV Least Square Dummy Variable
MOSPI Ministry of Statistics and Programme Implementation
MRP Mixed Recall Period
NBER National Bureau of Economic Research
NBFCs Non-banking Finance Companies
NDC National Development Council
NER Net Enrollment Ratio
NIB National Investment Board
NPA Non-performing Asset
NREGA National Rural Employment Guarantee Act
NRHM National Rural Health Mission
NRI Non-resident Indian
NSC National Statistical Commission
NSS National Sample Survey
NSSO National Sample Survey Office
OLS Ordinary Least Square
PCA Principal Component Analysis
PCI Per Capita Income
PHCs Primary Health Centres
PLRs Prime Lending Rates
PP Phillips and Perron
PPP Public–Private Partnership
PPPAC Public–Private Partnership Appraisal Committee
PPPPs People Public–Private Partnership
PRIs Panchayati Raj Institutions
PSBs Public Sector Banks
PURA Provision of Urban Amenities in Rural Areas
PwC Pricewaterhouse Coopers
RBI Reserve Bank of India
List of Abbreviations xxi
RHS Rural Health Statistics

RIDF Rural Infrastructure Development Fund
RRB Regional Rural Banks
RSVY Rashtriya Sam Vikas Yojana
RTE Right to Education
RTI Right to Information
SC Scheduled Caste
SC/ST Scheduled Caste and Scheduled Tribe
SCS Special Category States
SD Standard Deviation
SDP State Domestic Product
SME Small and Medium Enterprise
SSA Sarva Shiksha Abhiyan
UHC Universal Health Coverage
UIDAI Unique Identification Authority of India
UK United Kingdom
UNDP United Nation Development Programme
URP Uniform Recall Period
US United States
UTs Union Territories
VGF Viability Gap Funding
1
Introduction
India’s economy at present is characterized by subdued growth perform-

ance. Economic growth1 was only 6.5 per cent in fiscal year 2011–12,
the lowest in nine years, and projected to be a still lower 5 per cent in
2012–13. This low economic growth has created a sense of gloom about
the Indian economy. While the recent past has not been encouraging,
growth performance has been more assuring from a medium-term
perspective. If we take a medium-term view, after economic reforms were
introduced in July 1991, a growth rate of 5.7 per cent per annum was
recorded during the first decade (1991–2001). The growth rate acceler-
ated to 7.6 per cent per annum during 2002–11, the subsequent decade.
If we take a long-term view, the acceleration in economic growth was
sharper after economic reforms were introduced in 1991. Economic
growth of 4.1 per cent per annum during the first four decades of
planned development (1951–52 to 1990–91) increased to 6.7 per cent
per annum between 1991–92 and 2011–12.
The robust growth performance in the post-2000 period, especially
during 2004–8, prompted a number of reports from investment banks
and international consulting firms which envisioned India playing a
larger role in the global arena. For instance, the Pricewaterhouse Coopers
(PwC) report titled ‘World in 2050’, published in January 2011, labelled
India as a ‘growth tiger’ which will increase its share in world GDP from
2 per cent to 13 per cent, to emerge as the third-largest economy after
China and the United States at market-exchange rates in 2050, from
11th position in 2009. In PPP terms, India is projected to be the second
largest economy after China in 2050, up from its fourth position in
2009. The PwC report was followed by the ‘India Super Cycle Report’
published by the Standard Charted Bank in May 2011. The PwC report
projected India to be a star performer in the next growth super cycle
1
2 Revisiting Regional Growth Dynamics in India
and can become the third-largest economy of the world by 2030 with
around 10 per cent of the world’s GDP. Backed by its creative potential,
emergent middle class and demographic dividend, India was predicted
by the report to grow at more than 9 per cent in the coming two decades,
faster than China. These reports created a sense of euphoria – and it was
not long ago that the prime minister envisioned India growing at 10 per
cent per annum.
Both of these reports also cautioned the downside risks to India’s
emerging as an economic power house arising out of poor infrastructure,
regulatory burden, fiscal laxity and, above all, growth-supporting poli-
cies. Not much heed was paid, however, to these downside risks, which
led to a policy stasis leading to growth pessimism in the years 2011–13.
This growth pessimism was echoed by the Planning Commission in
the 12th Five-Year Plan document, where it has revised downwards the
growth projections for India to 8 per cent per annum (in the best-case
scenario) from 9.5 per cent per annum as outlined in the plan document’s
Approach Paper. It is now widely believed that, India might be caught in
the middle-income trap unless a swift course correction in policy and its
implementation is made in right earnest.
The theme of this book is to study regional growth dynamics in the
post-2000 period. However, as the recent drop in India’s growth rate has
been quite dramatic, questions such as what has led to the dismal growth
performance in 2011–12, and how the India growth story is going to
unfold in the coming years, are matters of interest to many. As such, before
considering growth at the spatial level, the macro dimensions of growth
and the key challenges to achieving higher rates of growth are discussed in
Chapter 2. Apart from sorting out the macroeconomic concerns, the scope
for growth would be enhanced significantly through better centre-state
and inter-state relations. As such, this addresses the political economy of
growth by studying the evolution of centre-state and inter-state relations.
This chapter will also discuss some of the game-changer initiatives that
the government has taken up in the post-2000 period. Thus, the remit of
Chapter 2 is to address three broad themes.
First, the chapter provides a broad overview of the evolution of the
macro economy, characterized by growth euphoria in the recent past
to the subsequent situation of growth pessimism and the key macr-
oeconomic challenges to attaining reasonable growth in the foreseeable
future. Second, the chapter discusses the forces shaping centre-state and
inter-state relations, which will have a bearing on the growth outcome.
Third, the chapter discusses the various game-changer initiatives which
will impart sustainability and acceptability to the growth process.
Introduction 3
Notwithstanding the recent dip, India’s growth in the post-2000

period has been a respectable 7.7 per cent. How the different states have
fared in the post-2000 period is a matter of empirical investigation. The
dispersion of this high growth across the states would convey a broad
sense of the states’ participation in the growth process. In view of this,
Chapter 3 discusses attributes of growth at the state level, such as which
sectors have been the drivers of growth, whether the structural composi-
tion of output in the states has undergone any major change, and how
the contribution of different states to national-level growth has changed
over time. As the growth experience in the post-2000 period has been
one of relatively low growth during 2000–3, followed by a phase of rapid
growth, 2004–8, and then by another phase of relatively low growth,
2009–12, it would be interesting to study how the different states have
performed in these three time periods. The inequality in income across
states is the theme of Chapter 4. Specifically, this chapter attempts to
find out how the relatively poorer states have performed compared to
their richer counterparts. Further, is there any evidence of poorer states
catching up with their richer counterparts in the post-reform period?
This is broadly the theme of discussion of Chapters 3 and 4.
The availability of quality infrastructure makes life more comfort-
able, apart from aiding the growth process. Anecdotal evidence
suggests that high growth states have better infrastructure. Does the
evidence on the ground validate the anecdotal evidence? The lack of
consistent data on the status of infrastructure is a critical gap in the
spatial growth literature. We have constructed an infrastructure index
at annual intervals for different states, encompassing in Chapter 5
both the economic and social dimensions and the relationship
between infrastructure and growth.
The federated states of the Indian Union are in different positions in
the income spectrum and have varied achievement in social parameters.
Health care falls under the purview of states. The Thirteenth Finance
Commission has discontinued the health equalization grants recom-
mended by the Twelfth Finance Commission. Will this have an adverse
impact on health outcomes in the state? Judging by the health outcomes
of the population and by the critical infrastructure in place, the situation
has not been very encouraging. There is a wide disparity among states.
With growing consciousness, more demand and policy shift in favour
of the social sector, it would be instructive to study the impact of public
expenditure on health outcome. One obvious and oft-used indictor of
health outcome is the Infant Mortality Rate (IMR). Chapter 6 is devoted
to studying the growth dependency of public expenditure on health and
whether the health expenditure is really effective in making a dent in

the IMR at the level of states in India in the post-reform period.
Credit in an economy plays the same role as blood in the human
body. In a bank-dominated financial system such as India, the banking
sector plays a crucial role in promoting regional equity in mobilizing
resources and channelizing the same for financing production activity
across the states. While the focus of banking sector reforms in the 1990s
was to promote a diversified, efficient and competitive banking system,
the emphasis in the post-2000 period has been on financial inclusion. In
order to promote financial inclusion in a sustainable manner, the weak-
nesses in the multi-agency architecture has been addressed through
consolidation in the Regional Rural Bank (RRB) space and revitaliza-
tion of credit cooperatives, and commercial banks have been prodded
to expand their reach to the rural hinterland through a number of
policy measures. How far the access to banking has improved, and how
the credit–growth relationship has evolved in the new dispensation at
the state level, are matters of interesting enquiry. This is the subject of
discussion in Chapter 7.
Before proceeding to the chapters, we briefly discuss the policy initia-
tives for reducing regional disparity in the post-2000 period.
Approach to addressing regional disparity
The period after 2000 has seen three planning documents. While
redressing regional disparity was a concern all through the planning
period, it gained added importance in the 11th and 12th five-year plans.
This is because, unlike in the 10th five-year plan, both the 11th and
12th five-year plan documents contain a separate chapter on ‘Regional
Inequality’. The changing approach to promoting regional equality
across these three plans is briefly discussed below.
The 10th-year plan, which was in currency during 2002–7, laid
down the reduction of regional imbalance as one of its prime objec-
tives. The approach to ameliorating regional backwardness prior to
the 10th plan was one of development of states through a favourable
disposition of central assistance to less developed states and through
special area programmes. The 10th plan introduced a new initiative
to address the problem of regional disparity, in the form of ‘Rashtriya
Sam Vikas Yojana’ (RSVY). RSVY focused on reducing regional imbal-
ance by providing additional grants for developmental programs only
if the concerned state government undertook an agreed set of reforms.
The Backward Districts Initiative (BDI) under the RSVY identified 147
Introduction 5
backward districts – on the basis of an index of backwardness comprising

three parameters with equal weight as to value of output per agricultural
worker, agriculture wage rate and percentage of SC/ST population of the
districts – to address the problems of low agricultural productivity, of
unemployment and to fill critical gaps in the physical and social infra-
structure. The BDI was a three-year programme in which each district
received Rs. 45 crores to address backwardness. However, a new govern-
ment had been instituted just after two years of the 10th plan being
in currency. Based on the experience gained in running the BDI in the
first two years, the Backward Regions Grant Fund (BRGF) was prompted
to make the process of implementation more participative and holistic.
The Panchayati Raj Institutions (PRIs) were involved in choosing the
schemes and their implementation and in the preparation of a district
plan to address backwardness. The scope of application of BRGF was
extended to 250 districts in the 11th plan in 2012 with the provision of
Rs. 29,100 crores.
The 12th plan document was published with the broad theme ‘Faster,
More Inclusive and Sustainable Growth’. The 12th plan recognizes
that local governments can play a crucial role in ensuring efficient and
accountable delivery of services and hence, emphasizes capacity-building
in PRIs in terms of both human resources and systems of implementa-
tion. The approach in the 12th plan towards BRGF is to focus on district,
sub-district and supra district levels for effective realization of outcomes.
While the bulk of the programme will be implemented through PRIs,
flexible funds will be provided at the district level to address infrastruc-
ture gaps. The 12th plan has revised the criteria of backwardness in four
dimensions – economic, social, educational and infrastructural2 – for
the selection of districts for focused attention to identify the 200 most
backward districts and the 1,500 most backward sub-districts, and has
raised the allocation to Rs. 67,500 crore. The restructured BRGF aims to
strengthen the institutional structure of governance.
2
Key Challenges
As alluded to in the Introduction, this chapter has three broad themes.

India’s GDP growth dropped to 6.9 per cent in 2008–9 because of the
negative externalities arising out of the global financial crisis. India
made a strong comeback in the subsequent two fiscal years, viz, 2009–10
and 2010–11, when growth could be maintained at around 8.5 per
cent, but growth again dipped to 6.5 per cent in 2011–12. The policy
responses to tackling the after-effects of the global financial crisis were
quite successful at protecting growth in the first two years but have not
been able to protect growth subsequently. As the drop in growth was
quite dramatic in 2011–12 and 2012–13, the macroeconomic manage-
ment since the onset of the global financial crisis and the key macr-
oeconomic challenges to reviving growth in the medium term is the
first theme.
In a federal setup like India’s, on many occasions there is no dearth of
solutions, but the real problem is to get the states on board for imple-
menting them. For instance, there is general acceptance in the academic
and policy circles of India in favour of replacing the present sales tax
system with the goods and services tax system. However, consensus
is elusive between the centre and the states on its implementation.
The states often complain that their concerns are not addressed in the
centralized planning process. Recently, the chief minister of Tamil Nadu
walked out of the National Development Council (NDC) meeting –
convened to ratify the 12th plan – for not being given adequate time
to put forth the state’s concerns. On a broader plane, the reaction of
the chief minister of Tamil Nadu, signifies the discontent of the states
to the approach of the centre in handling centre–state and inter-state
relations to foster development. The entire approach to development in
India since independence is steered by extra-constitutional bodies such
6
Key Challenges 7
as the Planning Commission and mechanisms such as the NDC. The

success of the various initiatives from the centre in making the growth
process more sustainable and inclusive will, to a great extent, depend
on the response of the states in a federal setup. The centre has to play
the role of friend, philosopher and guide to the states in facilitating the
growth process. The centre should take the initiate in activating the
constitutionally approved institutional mechanism so that states
acquire a platform to voice their concerns and find solutions to prob-
lems afflicting them. We discuss, as the second theme, the approach
to securing better inter-state and centre–state coordination through
institutional mechanisms so that the country achieves not only higher
growth, but harmonious growth.
While growth per se is important, equally important is the process
of growth. Beyond macroeconomic management, the government has
initiated a number of game-changer initiatives to make the growth
process sustainable and more inclusive in the post-2000 period. The
government introduced a limited employment guarantee programme,
made huge expenditures in building the rural infrastructure, has made
government business more transparent by allowing citizens access to
information on its conduct of business, has taken specific initiatives to
increase the access to banking and has made education a fundamental
right. The government has also begun the process of replacing the
present subsidy system by a cash-transfer system for better targeting of
government spending on welfare schemes. These initiatives will shape
the quality of growth in the future. Brief discussions on each of the
game-changer initiatives is the third theme.
The rest of the chapter is structured as follows: The macroeconomic
challenges are discussed in Section 2.1. Section 2.2 covers issue of centre–
state and inter-state relations from a growth perspective. The essential
features of the various game-changer initiatives are discussed in Section
2.3. Section 2.4 provides the concluding observations.
2.1 Macroeconomic management
The roots of the present growth pessimism can be traced back to the
policy response to protect growth following the global financial crisis
of 2007–8. The domestic consumption backed high growth, witnessed
during the four years before the global financial crisis, had led to the
belief that India’s growth is decoupled from the economic fortunes of
the advanced countries. The crisis brought home the sombre reality of
interconnectedness in a globalized world through the trade, finance
and confidence channel as growth decelerated to 6.8 per cent in

2008–9. In order to limit the adverse impact of the contagion on the
Indian economy, a combination of loose monetary and fiscal policies
was pursued. The central bank took a number of conventional and
unconventional measures to ease liquidity. These included augmenting
domestic and foreign exchange liquidity and a sharp reduction in the
policy rates. The Reserve Bank of India (RBI) infused primary liquidity
amounting to Rs. 5.6 trillion (10.5 per cent of GDP) and reduced
policy rates from 8 per cent to 4.75 per cent within a short span of six
months, between October 2008 and April 2009. These measures were
effective in ensuring speedy restoration of orderly conditions in the
financial markets over a short time span. Monetary policy measures
were complemented by a fiscal stimulus package in 2008–9 in the form
of tax cuts, investment in infrastructure and increased expenditure on
government consumption to support aggregate demand. As a result,
the growth of Indian economy was relatively less impacted because
there was space for monetary and fiscal manoeuvrability when the
crisis struck. The pursuit of swift expansionary monetary and fiscal
policy restricted the drop in the growth to 6.9 per cent in 2008–9.
The fiscal space was created from the high growth in the three years
preceding the crisis. The space on the monetary front was created
because RBI had gradually increased the key policy rate by 300 bps
between April 2005 and August 2008 to prevent overheating of the
economy. It would be pertinent to mention here that in July 2005
the central bank could sense the building up of asset price bubbles in
the property sector. Accordingly, in that same month, the Reserve Bank
raised risk weights on exposures of banks to commercial real estate as
well as for credit risk on capital market exposures. RBI also more than
doubled provisioning requirements on standard loans for the specific
sectors in April 2006. The prudential measures which appeared then to
be restraining in nature, in hindsight turned out to be masterstroke of
a matured central bank.
The broad-brush economic weakness in major parts of the world
resulted in a dip in India’s exports in 2009–10. However, the expan-
sionary fiscal stance continued during 2009–10 negated the dip in
external demand, and the Indian economy registered a growth rate
of 8.0 per cent. Thus, the growth of 8 per cent in 2009–10 and 8.4
per cent in 2010–11 was achieved by pursing a combination of easy
monetary and expansionary fiscal policy. Though growth could be
sustained above 8 per cent, it was with the help of the ‘steroids’ of
expansionary policy. The undesirable consequences of misdirected
Key Challenges 9
policy were found in high and persistent levels of inflation at one end,
and ballooning of fiscal deficit on the other. Fiscal deficit, which was
on a correction path until 2007–8, shot up to 6 per cent in 2008–9 and
6.4 per cent in 2009–10. In 2010–11, the fiscal deficit turned out to
be 5.1 per cent, lower than budgeted (5.5 per cent) because of one-off
revenue from the auction of 3-G spectrum at one end and high levels
of inflation pushing the nominal GDP to a much higher level. The
artificially lower deficit indicators gave rise to fiscal laxity at one end,
and higher levels of inflation created problems on the savings and
investment front.
The domestic economic problems were magnified by the increased
risk perceptions arising out of the sovereign debt crisis in Europe. RBI
pursued with lower policy rates for an extended period between April
2009 and March 2010 to support growth which led to the building up
of the inflationary momentum in the economy. RBI tightened its mone-
tary stance, beginning with March 2010, to bring down inflation to its
medium-term target of 5 per cent and in pursuit of that objective had
raised the policy rates on 13 occasions until October 2011, continuing
with high rates until April 2012 when, for the first time, it reduced
rates by 50 bps. Though inflation levels could be brought down from
10 per cent to 7 per cent by March 2012, it remained much above the
medium-term target as the inflation was primarily supply-led whereas
monetary measures were more effective in countering demand-side
factors. High inflation coupled with governance-related issues on the
domestic front dampened the investment scenario and heightened
uncertainty emanating from the European sovereign debt crisis, all of
which adversely impacted the external demand. Exports grew at a robust
pace until the first half of 2011–12, but their growth was quite weak in
the second half, leading to an overall growth of 21 per cent compared to
38 per cent in the previous year.
The share of gross fixed capital formation (GFCF) in GDP declined
by almost 1 per cent in 2012 compared to 2011. Many observers
wonder at the fall in GDP growth by almost 2 per cent points in one
year. The sharp fall in growth would be less difficult to appreciate if we
note that the fall in GFCF has been observed for four successive years,
from 32.8 per cent in 2007–8 to 29.5 per cent in 2011–12. The cumu-
lative effect of the continuous fall in GFCF ratio that brought growth
to such low levels. While high interest rates were partly responsible, a
drop in investment is also on account of policy inaction on real-sector
issues, such as clearance for investment projects, ensuring fuel linkage
for power projects and the absence of much needed second-generation
reforms. As the real interest rates in the ongoing slowdown was much
lower than the real rate prevailing during the high growth years of
2004–8, government inaction on real-sector issues is responsible for
the drop in investment. Weak investment and external demand led to
growth plummeting to 6.5 per cent in 2011–12. The deceleration in
growth led to overshooting of fiscal deficit to 5.8 per cent in 2011–12
from the budgeted 5.1 per cent. Thus, under the circumstances, there
was a lack of fiscal space to prop up growth. The only viable option
to lifting growth in such circumstances is to boost investment, both
domestic and foreign, by undertaking investment-friendly reform
measures. A pickup in investment helps to ease supply-side pressures
on inflation and to pave the way for higher sustainable growth. The
drop in growth triggered deterioration in the rating outlook of India
and, as a result, a very high possibility of a rating downgrade. In 2013,
the government did muster the courage to initiate a spate of reforms
including the setting up of a cabinet committee on investment with
the chairmanship of the prime minister to fast-track clearances of
investment projects.
The 12th five-year plan document provides alternate growth scenarios
during 2012–13 to 2016–17. The plan document outlines the three
scenarios in which growth may pan out in these five years. The first
scenario is ‘strong inclusive growth’ in which growth could average
8.2 per cent. The second scenario considers ‘insufficient policy action’
whereby the broad direction of policy is pro-growth but implementa-
tion of the required reforms is tardy. In this scenario, growth could
slip to somewhere between 6–6.5 per cent. The third scenario is ‘policy
logjam’ depicted by a lackadaisical approach to economic policy, to
supply constraints and to erosion of investor confidence. In essence,
the third scenario characterized by whatever can go wrong to pull back
growth, actually does, and growth can drift down to 5–5.5 per cent.
Average real GDP had a growth of 7.9 per cent per annum, with the
services sector growing at 9.8 per cent, followed by industrial and agri-
cultural growth of 6.6 per cent and 3.3 per cent, respectively, in the 11th
five-year plan (2008–12). In the best-case scenario, growth of agricul-
tural and industrial output was projected to increase to 4 per cent and
8.1 per cent, respectively, and that of services to moderate to 9.1 per cent
per annum.
From a reading of the Macroeconomic Framework for the 12th plan,
three key challenges emerge. They are in the realm of resource-use effi-
ciency in the system, government finances and external payments.
Key Challenges 11
Resource-use efficiency
Efficiency in resource use captured through the incremental capital
output ratio (ICOR) deteriorated significantly during the 11th plan.
Compared to an ICOR of 4.1 for the 10th plan, the 11th plan achieved
an ICOR of 4.5, indicating erosion in resource-use efficiency. The 12th
plan does not explicitly mention the likely ICOR. However, the ICOR
can be derived implicitly from the ratio of fixed investment plus stocks
as per cent of GDP to the growth rate. The 12th plan projects an average
fixed investment rate of 34 per cent and stocks at 3.5 per cent of GDP.
The projected investments juxtaposed with the projected growth rate in
the best-case scenario yields an ICOR of 4.6 for the 12th plan. Thus, in
the best-case scenario, the macroeconomic framework suggests a further
deterioration in resource-use efficiency in the 12th five-year plan. Back
of the envelope, a rough calculation suggests that resource-use effi-
ciency will deteriorate significantly to around 6.5 in the policy logjam
scenario. The economic woes of India in the post-crisis period can also
be seen from the perspective of resource-use efficiency in the economic
system. It is the decline in the efficiency of the Indian economy which
is a major cause of concern. The rising ICOR is a reflection of policy
stasis. Improving resource-use efficiency is a key challenge.
Fiscal stress
The fiscal scenario became murkier during the 11th plan period as the
combined fiscal deficit of the centre and states increased from 3.97
per cent in 2007–8 to 8.10 per cent in 2011–12. The central govern-
ment revenues as a proportion of GDP declined by 2 percentage
points of GDP during the 11th plan. The fiscal concessions doled
out to tackle the slowdown arising from the global financial crisis
have been partly responsible for the deterioration in public finances.
The lack of political consensus on implementing tax-reform measures
such as the GST and reduction of subsidies have also contributed to
the fiscal mess. The prime minister had resolved to ‘bite the bullet’
in cutting subsidies at the time of budget. The progress in improving
government finances has, however, been tardy. The problem on the
fiscal front can be managed to a great extent if growth revives to the
8 per cent range.
External payments
India’s external count has a structural characteristic of higher imports and
lower exports. This structural mismatch between imports and exports is
reflected in the current account deficit (CAD). India’s CAD averaged 2.7
per cent during the 11th plan, higher than the sustainable 2.5 per cent.
It is projected to slip further to 2.9 per cent of the GDP during the 12th
plan. There was some accretion to forex after financing the deficit, as
total capital inflows amounted to 4.1 per cent of GDP during the 11th
plan. However, it is worth mentioning that the non–debt-creating inflows
were only 2.1 per cent, the rest in the form of different types of loans,
including ECBs and NRI deposits. Given the structural imbalance on the
current account, ensuring stable sources of financing the deficit is a key
challenge in the 12th plan. FDI and FII flows were projected to decline to
1.5 per cent of GDP during the 12th plan. While the inward FDI, which
averaged 2.2 per cent for the 11th plan, was projected to decline to 1.8
per cent of GDP during the 12th plan, equity flows were projected to fall
more sharply, from 1.3 per cent of GDP to only 0.5 per cent of GDP. The
plan document acknowledges having taken a conservative view of the
global risk appetite and the perception of India as an investment desti-
nation. The document points out that if growth momentum is revived
in 2013–14, getting FII flows at an average of 1 per cent of GDP in the
plan period may not be infeasible. With central banks of developed
countries pursuing ultra-expansionary monetary policy, a part of the
additional liquidity can find its way to the emerging market econo-
mies, which generate better returns. We can expect better performance
on the FDI and FII front if domestic growth constraints are sorted out.
Addressing investor confidence, domestic as well as foreign, through
growth-supporting policies will be key to achieve sustainable growth
in the 12th five-year plan.
Price stability
In addition to the above three challenges, the Indian economy faces
a fourth macroeconomic challenge in the short to medium term, one
which influences the outcomes in the 12th plan and dampens the price
pressure observed in the past three years. The plan document main-
tained a stoic silence on addressing the inflation issue. Though inflation
management falls in the domain of monetary policy, fiscal posturing
has serious implications for price stability. While fiscal prudence will
help to alleviate inflation, the central bank, on its part, needs to revisit
the growth–inflation trade-off. As much of the inflation is supply-led,
pursuing too tight a monetary policy for too long a period has choked
growth without the desired softening of inflation. The correlation
between GDP growth rate and the inflation rate in India over the last four
decades is negative, and statistically significant. While the correlation
Key Challenges 13
suggests a negative association between growth and inflation, it does

not throw light in the direction of causality. Other statistical measure-
ments suggest that growth has a large predictive power for inflation,
rather than vice-versa. Higher growth is indicative of a better supply
response and, hence, has a sobering impact on inflation. The central
bank has resisted pressure from different quarters to lower policy rates
in its attempt to combat inflation.
The central bank backed its tight monetary stance by arguing that
the real interest rates in the slowdown observed during the recent years
were much lower than those prevailing during the high growth years of
2004–8. Therefore, the bank has attributed the current problem of nega-
tive investment growth to factors other than interest rates. The central
bank is correct in its assertion that government inaction on real-sector
issues is responsible for a drop in investment. However, it may not be
prudent to overlook the impact of high nominal interest rates on the
economy. While real interest rates do matter for current investment deci-
sions, which will affect future output, high nominal interest rates can
affect the servicing of loans that have already been taken. In a situation
of slowdown, it becomes that much harder for producers to service their
loans or to pass on higher interest burden to the ultimate consumer.
Policy rates began to increase from March 2010 through November 2011
and were maintained at those high levels until April 2012. Consequently,
the interest burden of borrowers increased by 30–40 per cent in a short
span of one year, between July 2010 and July 2011, and continued at
those high levels for roughly one more year. When growth dropped from
8.4 per cent in 2010–11 to 6.5 per cent in 2011–12, borrowers were unable
to pay their larger interest component on existing loans and this resulted
in higher restructured assets. For instance, the gross NPA percentage of
nationalized banks and the State Bank of India increased from 1.9 per cent
and 3.3 per cent in March 2011 to 2.5 per cent and 4.4 per cent, respec-
tively, in March 2012. The restructured advances of public sector banks
(PSBs) rose by 48 per cent, taking the share of restructured advances as
proportion of gross advances to 5.73 per cent in 2011–12. Once banks are
in trouble, it can have a major economic fallout. As a consequence, the
monetary policy actions will be quite important in shaping the growth–
inflation dynamics.
2.2 Centre–state and inter-state relations
The growth projections in the 12th plan are in contrast to India’s aspi-
ration for a 9 per cent per annum growth outlined in the approach
paper to the 12th five-year plan. India aspires to be a developed

economy making full use of its demographic advantage, as 31 per cent
of the population is under age of 15. It was not long ago that the prime
minister envisioned India’s economy to grow at 10 per cent per annum.
It is possible for India to grow at 10 per cent in the medium term as the
drivers of high growth, viz, democracy, demographic dividend and a
huge domestic market remain intact. But is not destined to grow at that
high rate as the experience of the post-crisis period suggests. It is very
much possible that India will be caught in the middle-income trap.
If India is to move beyond the middle-income trap to attain its true
growth potential, apart from getting right the macro contours of policy,
the country needs a more proactive approach to harnessing the growth
potential in the states and, more importantly, the externalities associ-
ated with better centre–state and inter-state coordination in a host of
dimensions.
There are institutional mechanisms such as zonal councils and the
inter-state council to promote better centre–state and inter-state rela-
tions. However, these mechanisms are yet to be fully utilized to deliver
the best possible outcomes. This aspect of growth can be appreciated if
we recount the evolution of India as a nation and the role that better
centre–state and inter-state relations can play in shaping the growth
outcome.
Post-independence linguistic hostilities arising out of reorganiza-
tion of the states on a linguistic pattern posed a major challenge to the
unity of the nation. To counter this situation, the States Reorganization
Act of 1956 was enacted, which provided for creation of five zonal
councils.1 The purpose of these councils is to create healthy inter-state
and centre–state environments with a view to solving inter-state
problems and fostering balanced socioeconomic development of the
respective zones. The North Eastern States were not included in any of
the zonal councils and their special problems are looked after by the
North Eastern Council, set up under the North Eastern Council Act of
1972. Each zonal council has set up a standing committee consisting
of chief secretaries of the member states of their respective zonal coun-
cils. To date, the various zonal councils have held 107 meetings. The
meetings of the zonal councils are held only at long intervals, which
reduce their utility as an action-oriented brainstorming platform. For
instance, there have been no meetings of the Eastern Zonal Council
since 2005, Southern Zonal Council since 2007 and the Western Zonal
Council since 2006.
Key Challenges 15
Besides the mechanism of zonal councils, the Constitution of India

under Article 263 (b) and (c) provides for setting up the Inter-state
Council (ISC) to sort out inter-state conflicts. The first Administrative
Reforms Commission (ARC; chairperson: K. Hanumanthaiah), consti-
tuted by the Government of India in 1966, recommended the establish-
ment of an ISC to discuss all issues of national importance in which
the states are interested. The Centre–State Relations Inquiry Committee
(chairman: P.V. Rajamanar), set up by the government of Tamil Nadu in
1969, also strongly argued for the establishment of the ISC. However, the
ISC was not formally constituted under Article 263 of the Constitution
of India until 1990, through a presidential order based on the recom-
mendations of the Sarkaria Commission. The composition of the ISC
is quite broad-based.2 The importance of the ISC has been highlighted
by subsequent commissions on centre–state relations, and the establish-
ment of the second Administrative Reforms Commission. For instance,
the National Commission to Review the Working of the Constitution
(chairman: M.N. Venkatachaliah), set up by the government in 2000,
also highlighted the utilization of the institution of the ISC for discus-
sion of policy matters involving more than one state and expeditious
decision making.
The second ARC (chairman: Shri M. Veerappa Moily) was set up by
the Government of India in 2005 with the mandate to suggest meas-
ures to achieve a proactive, responsive, accountable, sustainable and
efficient administration for the country at all levels of governance. The
second ARC made two specific recommendations which related to the
Inter-state Council. First, the ISC must be used for resolving conflict and
for better coordination of policy and action in matters of interest to the
Union and the states. Second, the ISC need not exist in perpetuity but
should be constituted as and when needed. Further, there should be
provision for constituting more than one council at a given time, with
different composition for each, to consider different matters of concern
or disputes in order to facilitate meaningful, result-oriented discussions
by parties directly interested in an item, and to facilitate time-bound
solutions.
The government appointed another commission on centre–state rela-
tions in 2007 to take cognizance of the changes that have occurred
in the polity and economy of India since the Sarkaria Commission
was established in 1983 to improve centre–state relations. This 2007
commission on centre–state relations (chairman: Madan Mohan
Punchhi) recommended strengthening and activating the ISC and
accorded it a key role in its seven-volume report presented to govern-

ment in 2010. This commission recommended that the ISC must meet
at least thrice a year on an agenda developed after proper consultation
with states. This commission also laid out the modalities for making
the ISC an effective mechanism for intergovernmental resolutions.
Specifically, the commission recommended that once the ISC is made
a vibrant, negotiating forum for policy development and resolution of
conflicts, the government may consider transferring the functions of
the National Development Council to the ISC. The council should have
functional independence with a professional secretariat constituted of
experts on relevant fields of knowledge and supported by central and
state officials on deputation for limited periods. Further, the ISC should
have an organizational and management structure different from the
government departments so that it is flexible enough to accommodate
management practices involving multidisciplinary skills conducive to
federal governance under the constitution. Despite repeated assertions
by different commissions, the ISC has held ten meetings in the last 22
years of its existence and has made only tardy progress in addressing the
inter-state disputes.
Notwithstanding this tardy progress, a number of developments
beginning in the 1990s have paved the way for improved centre–
state and inter-state relations. These are, broadly, the adoption of new
economic policy in 1991; the advent of a coalition government at the
centre and involvement of regional and smaller parties in governance
at the national level; and the move towards taking governance closer
to the people through the 73rd and 74th amendments to the consti-
tution, which provide for creation of the three-tier structure of demo-
cratic institutions – at the district, block and village levels, and popularly
known as the Panchayati Raj System.
First, one of the noteworthy developments since the 1990s is support
by the successive governments for the process of economic reforms and
greater integration of India with the global economy. The new economic
policy of 1991 envisaged greater reliance on market forces for resource
allocation. To this end, the central government elicited involvement
of the private sector through partnerships in implementing the plan
schemes, including the infrastructure projects. This broad approach
forced the centre to provide more space to states to negotiate for FDI
alternatives in the development projects. The decade of the 1990s marked
a move away from centralized planning when India opted for indicative
planning in the 8th five-year plan. The essence of indicative planning
is to provide a long-term strategic vision of the future and set forth the
Key Challenges 17
priorities of the nation. Under indicative planning states get a larger

space to formulate their own policies in sync with the overall objectives
of the nation. These developments have redefined the centre–state rela-
tion from one of ‘strong centre and weak states’ to that of ‘strong centre
with strong states’.
Second, the emergence of a coalition government which gave direct
representation to regional parties in the decision-making process at the
centre eased tension between the centre and the states (CCS-2007). The
regional parties from the mid-1990s realized that they, as a group, cannot
substitute for national parties but, at the same time, they can carve out
political space of their own at the centre through electoral gains in their
regions. The national parties also realized that they have to be more
receptive to accommodating regional aspirations. This mutual recogni-
tion by the national and regional parties provided stability to coalition
politics at the centre.
Third, the Panchayati Raj system provides the institutional arrange-
ment for achieving rural development through people’s initiatives and
participation. The decentralized approach to planning has been brought
into focus by the Panchayati Raj initiative. The district administration
and state government will have a greater voice in the decentralized
approach to planning. The new dispensation calls for greater centre–
state coordination.
The need for better centre–state and inter-state coordination is felt on
account of the internal security threats that the states have been facing
in recent times. Internal security threats the country has been facing
since the mid-1980s are the single biggest challenge to the prosperity
of India. Effective tackling of internal security concerns can only be
secured through well-coordinated skills of the centre and the states in
pooling the required technological and human resources. Thus, there
is a need for better centre–state relations. In addition, inter-state coor-
dination on issues such as inter-state river water disputes; problems
pertaining to the location, funding and execution of mega projects;
ecosystems management; climate change and natural disasters; and
development of tourism will help the individual states to harness their
true growth potential.
At a broad level, the approach to cooperation is met with scepticism
on the part of states because of the fear of losing the discretionary power
over their own affairs. This fear looks quite genuine, on the face of it,
but a deeper probe makes them appear unfounded. Just as transition
from a state of independence to inter-dependence signifies maturity
and a higher form of evolution for an individual to harness his true
potential, the same applies to India’s states. A state can make limited
progress in development on its own, but it needs to sort out vexed issues
cross-cutting other states to attain higher levels of development.
The success of the various initiatives from the centre to make the growth
process more sustainable and inclusive will to a great extent depend on
the response of the states in a federal setup. The success of the different
regions in responding to the evolving policies will be shaped by their
ability to cooperate through the institutional mechanisms like the ISC.
A coordinated approach to development by states within a region can be
secured through the zonal councils. The institutional mechanisms such
as the ISC and zonal councils, though present for quite some time, are
not fully utilized. In the post-1990 period, changes in economic policy,
new political configuration and administrative reorganization has given
more space to the states in the federal setup. States and regions should
make full use of the available institutional mechanism to voice their
concerns and find solutions to problems afflicting them so that the
country achieves higher and harmonious growth.
2.3 Game-changer initiatives
The attempt in the post-2000 period has been to make the growth process
more inclusive and participatory through various policy initiatives. At
the policy level, in the post-2000 period six game-changer initiatives
have been made which will have extensive welfare consequences apart
from having serious political economy connotations. These are broadly
in the spheres of livelihood, governance, education, and infrastructure
and delivery mechanisms for public services.
NREGA
India does not have a social security system. In an attempt to improve
livelihood conditions in rural India, Parliament enacted the National
Rural Employment Guarantee Act (NREGA) in 2005. The NREGA
provides job guarantees. NREGA guarantees to every household in rural
India at least 100 days of wage employment in unskilled manual work
in every fiscal year. The idea is to provide gainful employment during
agriculture’s lean season. Central government launched NREGA in 200
select districts early in 2006 and it was later extended to all of rural India
in 2008. As a mark of respect to the ‘father of the Nation’, NREGA was
renamed the Mahatma Gandhi National Rural Employment Guarantee
Act (MGNREGA) in 2009. The wages under the NREGA are decided by
the central government and have been indexed since January of 2011.
Key Challenges 19
A novel feature of this job-guarantee scheme is that it is demand driven

and has the provision for unemployment allowance on the failure of
administration to provide employment within 15 days of the worker’s
expression of interest. The unemployment allowance is one-fourth of
the wage rate for the first 30 days and half of the wage rate for the
remaining period of the fiscal year. Roughly 42 days of employment
were provided under MNREGA in the first five years of its operation.
The financing of expenditures on MNREGA is shared by both the centre
and the respective states. While the central government provides for the
entire cost of wages for unskilled manual workers and 75 per cent of the
cost of material and wages for skilled and semi-skilled workers, the state
government arranges for 25 per cent of the cost of material and wages
for skilled and semi-skilled workers and an unemployment allowance.
The central government spent Rs. 31,000 crore on MNREGA-related
expenses in 2011–12, providing employment to more than 4.4 crore
households.
RTI
Probity and transparency in governance has been greatly facilitated by
the passage of the Right to Information Act (RTI) in 2005. Government
affairs were marred with secrecy before the enactment of the RTI act,
which mandates response to requests for information sought by citi-
zens from different tiers of government in a time-bound manner. The
act also requires every public authority to digitize their records and to
proactively and voluntarily disclose certain categories of information
for wider dissemination so that recourse to RTI is minimized. The act
enables individuals to obtain copies of government documents and
scrutinize government action which involves public money. The act
is a potent weapon for checking arbitrariness in governmental deci-
sion making, and it contributes to the strength of India as a functional
democracy.
Bharat Nirman
In a bid to improve rural infrastructure in a comprehensive manner
encompassing electricity, drinking water, all-weather roads, rural
housing, irrigation, telephones and broadband connection, the govern-
ment launched the Bharat Nirman programme in 2004. Since the launch
of this programme, additional irrigation potential of 1 crore hectares
have been created; electricity to 1 lakh villages and 1.75 crore poor
households has been provided; 43,000 habitations have been connected
with all-weather roads and 2.31 lakh kilometres of rural roads have been
upgraded; and considerable progress in the provision of safe drinking

water has been made as of early 2012. Further, 5.8 lakh villages out of a
total of 5.93 lakh inhabited villages now have public village telephones.
Another important government initiative in 2004 is the Provision of
Urban Amenities in Rural Areas (PURA) scheme which envisages inte-
grating rural infrastructure development with economic regeneration
activities and is the first attempt at delivering a basket of infrastruc-
ture and amenities through public–private partnership (PPP) between
Gram Panchayat and private-sector partners in the rural areas. This is an
effort to provide an alternate framework for rural development which
attempts to harness private-sector efficiencies in the management of
assets and delivery of services while implementing rural infrastructure
development schemes. In the urban sphere the government launched
the Jawaharlal Nehru National Urban Renewal Mission (JnNURM) as a
massive city-modernization scheme in 2005. JnNURM strives to create
‘economically productive, efficient, equitable and responsive Cities’ by
a strategy of upgrading the social and economic infrastructure in cities,
provision of basic services to the urban poor and wide-ranging urban
sector reforms to strengthen municipal governance in accordance with
the 74th Constitutional Amendment Act of 1992.
UIAIDI
Misidentifying of beneficiaries has been a bane of public policy to
improve the welfare of people since independence. The Unique identifi-
cation project was initially conceived by the Planning Commission for
efficient delivery of welfare services by providing identification for each
resident across the country. Unique identification of beneficiaries would
help in effective monitoring of various programs and schemes of the
government. The Unique Identification Authority of India (UIDAI) was
created under the Planning Commission to operationalize this initia-
tive. Subsequently, the mandate of UIDAI has been expanded to inte-
grate it with the initiative of the Registrar General of India in creating
a National Population Register and in the issuance of Multi-purpose
National Identity Cards to citizens of India. The UIDAI aims to develop
and implement the necessary institutional, technical and legal infra-
structure to issue to Indian residents unique identity numbers which
can be verified and authenticated in an online, cost-effective manner
and is robust enough to eliminate duplicate and fake identities. Aadhaar,
which translates into ‘foundation’ or ‘support’, is the brand name of
the Unique Identification Number issued by the UIDAI. The unique
identification numbers are linked to the demographic and biometric
Key Challenges 21
information of the resident and can be used for identification as well as

to avail residents of a host of benefits and services. The UIDAI initiative
has great transformational capabilities as it serves the foundation for the
effective enforcement of individual rights. Government had mooted the
idea of cash transfers in the budget for 2011–12 in view of leakages in
the Public Distribution System. The 2012–13 budget proposed to direct
cash transfers of LPG and kerosene subsidies. The idea was to secure
greater efficiency, cost effectiveness and better delivery of services meant
to help the poor. The government rolled out Direct Cash Transfers in
January 2013 in 20 districts and has plans to cover half the country by
April 2013 by leveraging the Aadhaar platform. The prime minster of
India elaborated the benefits of Aadhaar to the people in the following
words: The government is rolling out Aadhaar based services rapidly
so that benefits like scholarships for students, pensions for the aged,
health benefits, MNREGA wages and many other benefits are transferred
directly into bank accounts using Aadhaar as a bridge. This will reduce
leakages, cut down corruption, eliminate middlemen, target benefici-
aries better and speed up transfer of benefits to eligible individuals. It
will, at one go, bring in crores of people into our banking system and
mainstream them into our economy.
Right to education
India took a much-required step in making education a fundamental
right through the promulgation of the Right of Children to Free and
Compulsory Education (RTE) Act of 2009, which became operational
in 2010. Sam Carlson, World Bank’s education specialist for India, finds
the Indian legislation on RTE unique in the sense that it is the first
legislation in the world which puts the responsibility of ensuring enroll-
ment, attendance and completion on the Government. It is the parents’
responsibility to send the children to schools in the U.S. and other
countries.
With the enforcement of the RTE, the ongoing Sarva Shiksha Abhiyan
(SSA), India’s flagship programme for achievement of Universalization
of Elementary Education (UEE), will be harmonized to achieve free and
compulsory education for children between 6 and 14. The elementary
education comprising primary (Class I–V) and upper primary (Class
VI–VIII) forms the foundation of the education pyramid. GER and NER
at the elementary education level were 111.2 per cent and 98 per cent in
2009–10. However, at the upper primary level NER was only 62 per cent
in 2009–10, indicating steep dropout rates after the elementary level.
Further, notwithstanding the near universalization of enrolment at the
elementary level, school attendance has been particularly low in the

educationally backward states. Therefore, the 12th plan emphasizes the
need for a shift in strategy from a focus on inputs and increasing access
and enrolment to improvising the teaching–learning process to attain
better learning outcomes. As a consequence, the implementation of the
RTE in true spirit would require focus on the quality of education.
Financial inclusion
The planning approach strives for inclusive growth because of inci-
dence of extreme levels of poverty despite higher economic growth. By
pursuing an inclusive growth strategy, the government strives to create
an enabling environment in which the poor can share the benefits of
growth and also contribute to the growth of the economy. Financial
inclusion is an important plank of the overall inclusive growth strategy,
as access to finance is a facilitator for reducing poverty. Following the
publication in 2004 of C.K. Prahlad’s The Fortune at the Bottom of the
Pyramid and the Blue Book by the United Nations in mid-2005, financial
inclusion has received renewed and greater attention in India.
The stress on financial inclusion also owes to the findings of the
All-India Debt and Investment Survey (AIDIS) of 2002, which revealed
certain disturbing trends with respect to the reach of formal financial
institutions. AIDIS reported a rising trend of the share of non-institutional
sources of credit since 1991. The share of moneylenders in the total
credit availed by the cultivator household, which had declined from
69.7 per cent in 1951 to 17.5 per cent in 1991, had increased to 27
per cent in 2002 (Thorat, 2007). The declining reach of formal finan-
cial institutions has raised policy concerns. As a consequence, financial
inclusion has assumed the role of key element in the overall inclusive
growth strategy.
Financial inclusion connotes delivery of financial services at an
affordable cost to people in the disadvantaged and low-income groups.
The various financial services include credit, savings, insurance and
payments and remittance facilities. The objective of financial inclu-
sion is to extend the scope of the organized financial system to embrace
people with low incomes. Financial inclusion has multiple connota-
tions but access is its most fundamental requirement. For its part, the
central bank has recently initiated a number of measures to promote
financial inclusion. First, the commercial banks and RRBs were advised
in November 2005 to offer a ‘no-frills’ basic banking account with nil
or low minimum balances so that banking services can be accessible to
a larger cross-section of people. Banks were also asked to provide the
Key Challenges 23
basic banking facilities in a transparent manner, with reasonable service

charges. Second, to increase penetration of the formal financial sector in
the credit market, banks were also asked to allow limited overdraft facili-
ties in ‘no-frills’ accounts, without any collateral. To incentivize finan-
cial inclusion, banks were allowed (in May 2008) to categorize overdrafts
up to Rs. 25,000 (per account) granted against ‘no-frills’ accounts in
rural and semi-urban areas as indirect finance to the agriculture sector
which will qualify for priority sector advances. Third, in January 2006,
the Reserve Bank introduced the business facilitator (BF) and business
correspondent (BC) models to improve banking penetration beyond
the scope of branch banking. Since then, significant progress has been
made in opening such no-frills accounts. The financial inclusion drive
led to the opening of 138.5 million no-frills accounts by early 2012. The
banking regulator further relaxed the branch authorization policy and
directed commercial banks to open at least 25 per cent of their total
branches in hitherto bankless areas of the country. As a result, the share
of rural and semi-urban branches in total new branches opened reached
69.8 per cent during 2011–12, up from a mere 23.2 per cent in 2004–5.
The share of hitherto bankless centres in newly opened branches has
been around 20 per cent during 2011–12. Considerable progress has
been made, but much more remains to be done.
In the Union Budget for 2010–11 the finance minister expressed the
government’s intention to provide banking facilities to villages having
population in excess of 2000 by March, 2012. About 73,000 such bank-
less villages were identified and, by 2012, were broadly covered by
banking facilities, through various modes. However, government has
been considering changing the modality of payments from government
to beneficiaries from cash payments to bank transfer. This has neces-
sitated banks to expand their reach to habitations having populations
fewer than 2000. To that end, RBI has issued guidelines to banks in June
2012 to prepare a roadmap covering all bankless villages of populations
under 2,000, and in a time-bound manner. Banks have also been advised
to have a BC touch point in each of the villages in the country, to start
with, for provision of EBT services (RBI, 2012).
2.4 Conclusion
Both China and India could post enviable growth rates in the two years
following the global financial crisis. However, there is a qualitative
difference in the manner growth was supported in the wake of collapse
in external demand following this crisis. China introduced a stimulus
package aimed at increasing investment to protect demand. India, on

the other hand, supported growth by boosting consumption demand
through higher spending on welfare programmes without concomitant
increases in production or productivity. In fact, investments have fallen
in the post-crisis period. Capacity constraints owing to falling invest-
ment and rising incomes led to price pressures in the economy. The
central bank is trying hard to fight inflation by keeping interest rates
at elevated levels. However, as the inflation is supply-led, the growth
sacrifice associated with tight monetary policy has been much higher
compared to the gain on the inflation front. The macro pictures have
turned murkier in the past two years because of policy stasis. A number
of infrastructure projects were stalled either because of problems in
land acquisition or environmental concerns. A number of financial
scams involving various government departments led to pressure from
the civil society to enact a stringent anti-corruption law, the Lokpal Bill
of 2011. The scams made the bureaucracy adopt a cautious approach
and led to slower decision making. The better part of the government’s
energy in the past two years has been consumed by attempts to tackle
the mass movement against corruption at one end and managing its
coalition partners at the other. In 2012, prospects of a national rating
downgrade because of worsening macro scenario forced the govern-
ment to implement some reform measures, such as raising diesel prices
to contain subsidies, permitting FDI in multi-brand retail, and so forth.
Government has also created an institutional mechanism in the form
of a cabinet committee on investment with the prime minister as chair-
person to speed up clearance for infrastructure projects. Governments
in India have performed when pushed to the wall. One can hope
that given the recent spate of initiatives, growth prospects should be
improved in the medium term.
Growth depends on a host of factors, including structural features,
natural resources, availability of both social and physical infrastruc-
ture, demographic characteristics and the political environment. It is
common to find a number of adjoining states classified into regions
or zones, sharing similar socio-cultural traits, agro-climatic conditions,
natural resources and topography. Because of these similarities, there is
vast potential for states within a region for resource sharing and emula-
tion of best practices so that the scope of growth improves for the indi-
vidual states. Further, it is observed that adjoining states classified into
regions are beset with certain unique advantages or disadvantages which
can have a bearing on their growth performance. These include, for
example, the menace of Naxalism in red corridor districts in the eastern
Key Challenges 25
region; inter-state river disputes in the southern region; relatively poorer

social indicators in a number of states within the northern and central
regions; the difficult topography in the north east region act as a drag
on economic performance, while the infrastructure advantage in the
northern and western regions helps to achieve higher growth. From a
different perspective, growth can flourish in an atmosphere of stability
and peace. The increasing incidence of violence and crime witnessed
in some of the states calls for greater coordination amongst the states
and between the centre and states so that a conducive environment for
growth is created. In this context, the need for better centre–state and
inter-state relations can hardly be overemphasized. Recently, a number of
states have asked the centre to confer upon them special category status
so that they can avail themselves of more funds for development. Such
demands are invariably turned down by the centre without considering
the merits of the request. As of now there are no well-defined criteria for
classifying a state as a special category. It will be in the interest of the
country that request of the states are assessed by some objective crite-
rion rather than by political expediency.
The various game-changer initiatives are beset with a number of
challenges which, unless effectively addressed, can at best have only
a limited impact. If implemented successfully, MNREGA can create a
virtuous cycle of higher consumption and higher growth. However, it
can as well lead to a vicious cycle of high inflation and lower growth.
The flagship, MNREGA, is often blamed for the persistent high inflation,
as the money spent in the programme has not led to the necessary asset
creation. There is one school of thought which argues that introduction
of MNREGA has put pressure on the rural labour market and has made
agriculture an unprofitable occupation. This school argues that it might
be a better idea to just dole out the funds without keeping people engaged
in work which is not leading to asset creation but putting pressure on
rural wages. Another school of thought argues for enrolling the poten-
tial beneficiaries in different skill-development training programmes by
paying a stipend which otherwise would have been disbursed as wages.
Learning skills would enable the poor to gain access to sustainable liveli-
hoods. The inadequate implementation of MNREGA puts serious ques-
tion marks on the competency of the administration in fulfilling the
vision of the policy and translating potential benefits to actual ones.
The UIADI is a progressive, but gigantic, initiative which will test the
competency of India’s bureaucracy.
Cash transfers to bank accounts of beneficiaries is criticized because of
the possible misspending of money. While misspending is one possible
result, possession of cash may also induce savings. The issue is really
one of responsible behaviour by the beneficiaries, which can only be
secured through education and awareness. From the perspective of effi-
cient delivery, the cash transfers should be welcome, given the leakages
in the existing subsidy system.
3
Growth Performance
Introduction
India achieved higher growth rates after embracing economic reforms in

the early 1990s. In the initial years after economic reforms, the growth
rate of the Indian economy averaged 6.5 per cent between 1993–94 and
1996–97. This growth rate was a stark contrast to the negative growth
witnessed in the crisis year of 1991–92. Beginning with the year 2003–4,
it was widely believed that the Indian economy had entered a new
growth trajectory. The average growth rate during 2000–3, at 4.7 per
cent, had significantly increased to 9 per cent during 2004–8. The surge
in investment rate from 25 per cent in 2002–3 to 33.8 per cent in 2006–7
provided credence to the new growth trajectory (GoI, 2008).
The onset of the global financial crisis, however, dampened the
growth prospects of the Indian economy in the subsequent years.
The GDP growth rate decelerated to 7.8 per cent during 2009–12. The
bleak growth prospects for the world economy, coupled with domestic
economic problems, have prompted the Planning Commission to revise
the rate of growth downwards to 8.2 per cent in the best-case scenario
during the 12th five-year plan period. This growth, however, is condi-
tional upon appropriate policy response to the evolving macroeconomic
scenario in the face of lower global growth prospects. The Planning
Commission has also cautioned that a business-as-usual approach would
yield growth of around 6.5 per cent and less than 6 per cent if the policy
stasis observed in the past two years, is not corrected. This is in contrast
with a 9 per cent per annum growth projected in the approach paper to
the 12th five-year plan.
Notwithstanding the recent dent, India’s growth experience has been
much better in the post-reforms period. Higher growth, however, would
27
be better accepted and sustained, if growth were broad based and favour-
ably affects a larger number of people. The broad-base character of the
growth process is more relevant in the democratic setup of a country
like India where rising aspirations of people can only be met by faster
growth that is evenly dispersed across regions. India has been forthright
in articulating its development ambitions through the five-year plans
since 1951. Under the broad rubric of growth, balanced regional devel-
opment has been one of the explicit planks of economic policy in India
since the early days of planning. For instance, the 1956 Industrial Policy
Resolution of the Government of India asserted that ‘only by securing a
balanced and coordinated development of the industrial and agricultural
sector in each region, can the entire country attain higher standards of
living’. In a similar vein, the National Integration Council emphasized
in 1961 the importance of regional balance in economic development
as a positive factor in promoting national integration.12 The 3rd plan
explicitly mentioned that ‘balanced development of different parts of
the country, extension of the benefits of economic progress to the less
developed regions and widespread diffusion of industry are among the
major aims of planned development’. The subsequent five-year plans
have also reiterated the need for a more balanced regional development.
In this context, the spatial analysis of growth can provide a considerable
insight into the inclusive nature of the growth process.
A spatial analysis of growth performance can be carried out at different
levels of disaggregation. While many studies consider the state as the
basic unit of analysis, there are a few studies on growth performance at
the district level. For instance, Sharma, Singh and Kumar (2010) have
studied income disparity amongst states and also between districts within
states. However, their inter-district analysis of disparity was restricted,
up to the year 2004–5 only. There is also much variation in the scope of
the studies at the level of states. Most of the studies on India’s regional
economic performance, such as those by Ahluwalia (2002) and Singh
and Srinivasan (2002), consider the performance of 14 major states,
mostly belonging to the general category. These studies exclude the
north-eastern and other special category states because of their special
features. India has in all 35 regions comprising 28 states, 6 Union terri-
tories and the national capital territory, New Delhi. The mountainous
states of the north and north-eastern parts of India are considered as
‘special category’ states (SCS) by the Planning Commission. Following
this classification, 11 out of the 28 states are identified as special cate-
gory states, and the rest as general category states (GCS). The SCS are
termed so because they receive special treatment in the allocation of
Growth Performance 29
funds released by the Planning Commission for planned development.

Out of the financial allocation to the GCS, 70 per cent is in form of loans
and the remaining 30 per cent being grants, whereas for the SCS the
proportions, respectively, are 10 per cent and 90 per cent. While delib-
erating on growth at the state level, it is common to find Assam and
Himachal Pradesh also included in the GCS category. Some researchers
on India’s regional growth performance have justified the exclusion of
the special category states on the grounds that the 14 states account for
the bulk of the India’s population and GDP output.3
At a more practical level, the reason for concentrating on the 14
major states is mainly twofold: the lack of availability of consistent
data, and the difference in their economic structure compared to the
special category states. There are very few studies such as that led by the
present author (Misra, 2007), who considered both the GCS and SCS.
We analysed the growth performance separately for the two catego-
ries of states across two time periods – 1981–93 and 1994–2004, corre-
sponding respectively to the pre-reform and post-reform years. The
study of growth at the district level can be of particular importance as
districts are the level of administration where various developmental
projects are implemented. Lack of authentic and up-to-date informa-
tion on growth profile is a major hindrance for undertaking studies at
the district level.
In the post-2000 period: growth was relatively low during 2000–3,
followed by a phase of rapid growth in 2004–8 and another phase of
relatively low growth during 2009–12. It would be interesting to study
how the various regions performed in these three time periods. In this
chapter we study the various dimensions of the growth process, such
as growth and variability of sectoral output, contribution of different
sectors to the overall growth in the spatial dimension4 during the period
2000–12 and also in three sub-periods.5 The rest of the chapter is organ-
ized as follows: Section 3.1 discusses the growth record at the macro level
for the Indian economy, for the different categories of states and also for
the states comprising them. Changes in the sectoral growth perform-
ance of the states in the three time periods are attempted in Section 3.2.
Section 3.3 comments on the contribution of different sectors to growth
in the spatial dimension. The stability of growth at the aggregate and
sectoral levels for different regions is discussed in Section 3.4. Section
3.5 discusses the changing share of different regions in the combined
State Domestic Product (SDP) and population of all the regions. This
section also comments on the changing contribution of different regions
to the growth of combined SDP and the combined population of all the
regions in different time periods. Concluding observations based on the

discussions in the preceding sections are discussed in Section 3.6.
3.1 Growth performance
Before we embark upon an analysis of growth performance at the state

level, we begin with a brief review of the same at the all-India level.
Though India’s growth performance was subdued in the first three
decades after independence, it was a significant improvement over
the 1 per cent per annum growth recorded in the first five decades of
the twentieth century. GDP grew by a much lower of 3.6 per cent per
annum in the first 30 years of planning and at a higher rate in the
subsequent two decades. The best growth performance, however, was
recorded in the post-2000 period. During the period 2000–12, GDP
grew at the rate of 7.6 per cent per annum, the population at 1.5 per
cent and per capita GDP at 6 per cent. Looking at the sub-periods,
GDP growth accelerated from 4.7 per cent during 2000–3 to 9.0 per
cent during 2004–8 and slowed down to 7.8 per cent in the subse-
quent period of 2009–12 (Table 3.1). Population growth has gradually
decelerated from 1.8 per cent in 2000–3 to 1.5 per cent during 2004–8
and further to 1.4 per cent during 2009–12. Per capita GDP growth
made a quantum jump from 2.8 per cent during 2000–3 to 7.4 per
cent during 2004–8. However, GDP growth has declined in 2009–12
to 6.4 per cent.
Table 3.1 Growth of the Indian economy (Per cent)
Period GDP Per capita GDP Population
1900–1 to 1946–47 1 0.2 0.8

1950–51 to 1979–80 3.6 1.4 2.2
1980–81 to 1992–93 5.2 3.0 2.1
1993–94 to 1998–99 6.6 4.5 2.0
1999–00 to 2011–12 7.7 6.0 1.5
1999–00 to 2002–3 4.7 2.8 1.8
2003–4 to 2007–8 9.0 7.4 1.5
2008–9 to 2011–12 7.8 6.4 1.4
Note:
1. GDP figures are at factor cost and at constant prices at 2004–5 base.
2. Growth rates are compound annual growth rates, computed using a semi log specification
with time as the independent variable.
3. The 1900–1 to 1946–47 estimates are for national income from Sivasubraminan.
Seen in terms of the performance of the GCS, SCS and UTs, the
following features emerge from Table 3.2.
First, both SDP and per capita SDP grew at a faster pace for the GCS
than for the SCS during the entire period of study. As the population
grew at the same pace of 1.5 per cent per annum in both the GCS and
the SCS, the difference in per capita growth is a reflection of the growth
in absolute SDP between them.
Second, UTs had, in contrast, much higher growth in both SDP and
population compared to that for GCS and the SCS, but growth in the
output dimension was higher than that in the population dimension.
As such, per capita SDP growth for UTs was the highest during the entire
period of study.
Third, the growth rate was high for all three categories of states in
the high-growth phase of 2004–8 compared to 2000–3. The accelera-
tion was quite sharp for the GCS and UTs. In the post-crisis period, GCS
and UTs underwent deceleration in growth, but the SCS experienced
acceleration.
Fourth, the population growth rate systematically fell for the GCS and
the SCS in the subsequent two periods compared to 2000–3. UTs had the
highest population growth amongst the three categories of states during
2000–3. The population growth rate almost halved during 2004–8.
However, there was an increase in the population growth rate for the
UTs during 2009–12 compared to 2004–8.
Fifth, seen in terms of per capita SDP growth, there was accelera-
tion for all the three categories of states during 2004–8. The growth
momentum, however, was maintained only in case of SCS in 2009–12
period compared to 2004–8.
Sixth, UTs had the highest SDP growth, followed by SCS and the
GCS during 2000–3 and 2009–12. UTs retained their position in the
high-growth phase but GCS replaced SCS in the second position.
Seventh, compared to 2000–3, in the high-growth phase the growth
rate of SDP increased the most for the GCS as a group, followed by that
for UTs and SCS. In terms of per capita SDP, the growth rate increased
the most for UTs followed by GCS and SCS in the high-growth phase
compared to the low-growth phase.
Eighth, compared to the high-growth phase, the growth rate of only
the SCS improved in the post-crisis period, and that of the other two
categories of states declined. The GCS had a larger decline in the SDP
growth compared to the SCS in the post-crisis period. Because of faster
population growth of UTs compared to the GCS, the decline in growth of
per capita SDP was higher for the former than the later in the post-crisis
Table 3.2 Growth of GSDP, population and per capita GSDP
State 2000–3 2000–3 2000–3 2004–8 2004–8 2004–8 2009–12 2009–12 2009–12 2000–12 2000–12 2000–12
GSDP GPOP GPSDP GSDP GPOP GPSDP GSDP GPOP GPSDP GSDP GPOP GPSDP
Andhra Pradesh 4.89 0.96 3.93 10.15 1.07 9.08 7.7 0.93 6.8 8.17 1.05 7.1
Bihar 5.97 2.49 3.48 8.04 1.66 6.38 12.4 1.40 11.0 7.32 1.72 5.6
Chhattisgarh 3.38 1.39 1.98 9.05 2.00 7.05 8.5 1.91 6.6 8.16 1.91 6.2
Goa 2.72 3.11 −0.39 8.24 3.11 5.13 9.5 3.37 6.1 7.76 3.25 4.5
Gujarat 4.12 2.05 2.07 10.80 1.55 9.25 9.6 1.39 8.2 9.57 1.58 8.0
Haryana 7.41 2.27 5.14 9.36 1.83 7.53 9.3 1.69 7.6 8.92 1.84 7.1
Jharkhand 0.30 1.96 −1.66 6.42 1.56 4.86 9.1 1.39 7.7 6.04 1.59 4.5
Karnataka 2.88 1.43 1.45 10.52 1.19 9.34 6.4 1.06 5.3 7.26 1.20 6.06
Kerala 5.26 0.97 4.30 9.07 0.88 8.19 8.6 0.73 7.9 7.80 0.90 6.9
Maharashtra 2.95 1.74 1.21 11.88 1.54 10.34 9.7 1.44 8.3 8.62 1.54 7.1
Madhya Pradesh −0.55 2.02 −2.57 5.82 1.82 4.00 9.6 1.63 7.9 6.25 1.82 4.4
Odisha 1.75 1.23 0.53 10.23 1.27 8.96 7.5 1.33 6.2 8.44 1.25 7.2
Punjab 2.78 1.64 1.14 7.50 1.85 5.65 6.2 1.85 4.4 6.07 1.82 4.3
Rajasthan 0.44 2.36 −1.92 5.98 1.86 4.12 7.5 1.69 5.8 6.80 1.89 4.9
Tamil Nadu 1.61 0.93 0.68 12.13 0.79 11.34 9.2 0.65 8.5 8.14 0.79 7.4
Uttar Pradesh 2.63 2.18 0.45 6.82 1.92 4.89 6.8 1.79 5.0 5.92 1.93 4.0
West Bengal 5.15 1.26 3.89 7.09 1.10 5.98 7.2 0.94 6.3 6.46 1.11 5.3
GCS 3.2 1.743 1.43 9.33 1.51 7.8 8.4 1.38 7.1 7.6 1.52 6.10
Arunachal 6.7 1.58 5.1 7.8 2.96 4.9 8.5 2.14 6.3 8.3 2.36 6.0
Pradesh
Assam 3.9 1.61 2.3 4.1 1.38 2.7 7.8 1.25 6.5 5.2 1.41 3.8
Himachal 5.4 1.69 3.7 8.4 1.24 7.16 8.1 1.28 6.9 7.6 1.35 6.3
Pradesh
Jammu & 3.3 2.05 1.3 5.8 1.47 4.3 5.7 1.32 4.4 5.3 1.51 3.8
Kashmir
Manipur 0.6 2.11 −1.5 5.5 2.00 3.5 6.5 1.88 4.7 5.6 1.99 3.6
Meghalaya 5.4 1.96 3.5 6.9 1.24 5.70 7.5 1.18 6.3 7.1 1.30 5.8
Mizoram 7.1 2.57 4.5 6.4 2.57 3.9 9.9 2.56 7.4 7.7 2.57 5.1
Nagaland 12.0 7.38 4.6 7.6 2.67 5.0 7.3 1.62 5.7 7.6 3.72 3.9
Sikkim 7.5 2.73 4.8 7.7 1.25 6.48 24.4 1.17 23.2 12.8 1.43 11.4
Tripura 9.2 0.78 8.4 7.3 1.24 6.08 8.7 1.18 7.5 7.9 1.19 6.7
Uttarakhand 8.6 1.75 6.9 14.4 1.61 12.77 12.0 1.49 10.5 12.4 1.61 10.8
SCS 5.3 1.84 3.42 7.2 1.50 5.74 8.6 1.36 7.3 7.3 1.54 5.7
Andaman & 3.8 2.08 1.8 9.4 3.5 5.9 8.9 3.2 5.6 9.1 3.3 5.8
Nicobar Islands
Chandigarh 10.5 3.24 7.3 10.8 5.2 5.6 8.3 5.8 2.5 9.9 4.9 5.0
Delhi 5.0 3.40 1.6 11.2 1.4 9.8 10.9 1.9 9.0 9.7 1.9 7.8
Pondicherry 9.6 1.89 7.7 7.3 1.9 5.4 8.9 3.7 5.1 7.2 2.1 5.1
UTs 5.6 3.27 2.4 10.9 1.7 9.2 10.6 2.3 8.2 9.6 2.2 7.4
All States 3.4 1.8 1.6 9.3 1.5 7.8 8.6 1.4 7.2 7.7 1.5 6.2
Source: The SDP and population figures are as reported by the Directorate of Economic and Statistics on an annual basis.
Growth rates are compound annual growth rates, computed using a semi log specification with time as the independent variable.
period compared to the high-growth phase. Only the SCS posted an

increase in per capita SDP growth rate in the post-crisis period compa-
rable to the high-growth phase.
Ninth, notwithstanding the dent in growth performance in the
post-crisis period, all three categories of states were much better placed
in terms of SDP and per capita SDP growth during 2009–12 compared
to 2000–3.
Tenth, as the GCS account for the highest share in the all-India popu-
lation and output, the behaviour of growth at the all-India level mimics
that observed for the GCS.
Seen at the level of individual states in these categories of states, the
following features are observed.
GCS
In the period of low growth during 2000–3, seven states – Bihar,
Chhattisgarh, Gujarat, Haryana, Andhra Pradesh, Kerala and West
Bengal – had SDP growth higher than the group average. Haryana
had the highest SDP growth rate of 7.4 per cent, and Madhya Pradesh
had the lowest growth rate of –0.5 per cent. All states experienced
accelerated growth in the high-growth phase of 2004–8 compared to
2000–3. However, only Andhra Pradesh, Haryana, Gujarat, Karnataka,
Maharashtra and Tamil Nadu had SDP growth higher than the group
average. During this period, Tamil Nadu had the highest SDP growth
of 12.1 per cent, and Madhya Pradesh had the lowest SDP growth of
5.8 per cent. The growth tempo of the high-growth phase could be
sustained only in a few states in the post-crisis period as the majority of
states witnessed deceleration in growth compared to 2004–8. There was
growth acceleration during 2009–12, compared to 2004–8, only in six
states – Madhya Pradesh, Jharkhand, Rajasthan, West Bengal, Goa and
Bihar. However, the SDP growth in Bihar, Chhattisgarh, Goa, Jharkhand,
Gujarat, Haryana, Kerala, Madhya Pradesh, Maharashtra and Tamil Nadu
was higher than the group average in the post-crisis period. The range of
growth in SDP across states declined consistently in the subsequent two
periods compared to 2000–3. Only Haryana and Gujarat had higher SDP
growth than the group average in all three time periods.
The population growth of the GCS as a group declined across the
sub-periods. Goa had the highest population growth and Tamil Nadu the
lowest amongst the GCS in all the three sub-periods. While the popula-
tion of Goa increased in the post-crisis period to 3.4 per cent compared to
3.1 per cent in the earlier two sub-periods, that of Tamil Nadu gradually
declined from 0.9 per cent in 2000–3 to 0.7 per cent in 2009–12. During
2000–3, nine states – Tamil Nadu, Andhra Pradesh, Kerala, Odisha, West
Bengal, Chhattisgarh, Karnataka, Punjab and Maharashtra (in ascending
order) – had population growth less than the group average. While most
of the states experienced a deceleration in population growth, Punjab,
Goa, Chhattisgarh, Andhra Pradesh and Odisha witnessed acceleration
during 2004–8 compared to 2000–3. Tamil Nadu, Kerala, Andhra Pradesh,
West Bengal, Karnataka and Odisha (in ascending order) had a popula-
tion growth less than the group average. Only two states, Goa and Odisha,
had acceleration in population growth during 2009–12 over the previous
sub-period. Nonetheless, a majority of the states had a population growth
higher than the group average during 2009–12. Only Tamil Nadu, Kerala,
Andhra Pradesh, West Bengal, Karnataka, Odisha and Jharkhand, in
ascending order, had a population growth less than the group average.
Given the way the growth of SDP and population has panned out
in the different sub-periods, the following features about evolution
of per capita SDP growth are worth noting. Per capita SDP growth for
the GCS as a group increased to 7.8 per cent during the high-growth
phase compared to that of 1.4 per cent during 2000–3. Though per
capita growth has decelerated to 7.1 per cent in the post-crisis period,
nevertheless it is much above the pace at which the GCS were growing
before the onset of the high-growth phase. It is observed that eight
states – Haryana, Kerala, Andhra Pradesh, West Bengal, Bihar, Gujarat,
Chhattisgarh and Karnataka in (descending order) – grew at a pace
higher than the group average during 2000–3. Haryana posted the best
growth in per capita SDP at 5.1 per cent and Madhya Pradesh the worst
at –2.6 per cent during 2000–3. All the states bettered upon their per
capita SDP growth performance during 2004–8 compared to 2000–3.
Tamil Nadu replaced Haryana as the state with the highest per capita
SDP growth at 11.3 per cent. Though Madhya Pradesh continued to
occupy the bottommost position in terms of per capita SDP growth, its
growth rate had considerably improved to 4 per cent. Thus, the range of
per capita SDP growth observed across states within the GCS declined
marginally in the high-growth phase compared to the 2000–3 phase.
However, only Tamil Nadu, Maharashtra, Karnataka, Gujarat, Andhra
Pradesh, Odisha and Kerala grew at a higher pace than the group
average during 2004–8.
Notwithstanding the deceleration in growth observed for the GCS as a
group during 2009–12 compared to 2004–8, we find eight states – Bihar,
Jharkhand, Goa, Haryana, Madhya Pradesh, Uttar Pradesh and West
Bengal – witnessed an increase in the rate of growth of per capita SDP
during 2009–12 compared to that in 2004–8. Bihar replaced Tamil Nadu
as having the highest per capita SDP growth rate, and Punjab replaced
Madhya Pradesh at the bottommost position during 2009–12. Only Bihar,
Tamil Nadu, Maharashtra, Gujarat, Madhya Pradesh, Kerala, Jharkhand
and Haryana, in descending order, grew at a pace higher than for the group
average during 2009–12. We find only Kerala and Gujarat grew at a pace
higher than the group average in all three sub-periods. Gujarat turns out
to be the only state having a higher growth rate than the group average
growth in both SDP and per capita SDP across all the three sub-periods.
During 2000–3, eight states had a per capita SDP growth higher than
the group average. In the high-growth phase of 2004–8, six states had a
SDP growth higher than the average, six states had population growth
lower than, and seven states had a per capita SDP growth higher than
the group average. In the post-crisis period, ten states had a SDP growth
higher than, six states had a population growth lower than, and eight
states had a per capita SDP growth higher than the group average.
SCS
Unlike the GCS, growth of SDP for the SCS during the period 2000–3
was much higher. During this period, Nagaland posted the highest SDP
growth, at 12 per cent, and Manipur the lowest, at 0.6 per cent, among
the SCS. As many as eight states – Nagaland, Tripura, Uttarakhand, Sikkim,
Mizoram, Arunachal Pradesh, Meghalaya and Himachal Pradesh (in
descending order) – had higher SDP growth. Except Nagaland, Mizoram
and Tripura, all other states in the SCS category witnessed acceleration in
their SDP during 2004–8 compared to 2000–3. Though the SCS as a group
experienced growth acceleration during 2004–8 compared to 2000–3, the
improvement was much less spectacular than that in GCS. Uttarakhand
posted the highest SDP growth of 14.4 per cent, and Assam the lowest
growth of 4.1 per cent, during 2004–8. All the states which had higher
than group average growth during 2000–3 also exhibited the same pattern
for 2004–8, except for Mizoram and Meghalaya. The growth accelera-
tion observed in the 2004–8 period continued to the next sub-period of
2009–12 only for Arunachal Pradesh, Assam, Manipur, Meghalaya and
Sikkim. Sikkim replaced Uttarakhand as having the highest SDP growth
rate of 24.4 per cent, while Jammu and Kashmir had the lowest growth
rate, 5.7 per cent, during 2009–12. Only Sikkim, Uttarakhand, Mizoram
and Tripura (in descending order) had an SDP growth higher than the
group average during 2009–12. The range of growth observed across states
in the SCS category increased sharply in the 2009–12 period. The range
in the growth across states has always remained much higher for the SCS
compared to the GCS in all three sub-periods.
As far as population growth in the SCS is concerned, during 2000–3

Nagaland had the highest population growth rate of 7.4 per cent and
Tripura had the lowest growth rate of 0.8 per cent. Tripura, Arunachal
Pradesh, Assam, Himachal Pradesh and Uttarakhand (in ascending
order) had a population growth rate lower than the group average.
Compared to 2000–3, population growth decelerated during 2004–8 in
most of the states and only Arunachal Pradesh, Tripura and Mizoram
experienced acceleration. Arunachal Pradesh replaced Nagaland for
having the highest population growth and Himachal Pradesh replaced
Tripura with the lowest population growth during 2004–8. Himachal
Pradesh, Tripura, Meghalaya, Sikkim, Assam and Jammu and Kashmir
(in ascending order) had a population growth lower than the group
average during 2004–8. Except Himachal Pradesh, all states experienced
deceleration in population growth during 2009–12 compared to 2004–8.
Mizoram and Sikkim had the highest and lowest population growth
at 2.6 per cent and 1.2 per cent respectively during 2009–12. Further,
Sikkim, Meghalaya, Tripura, Assam, Himachal Pradesh and Jammu and
Kashmir (in descending order) had population growth lower than the
group average during 2009–12.
As far as per capita SDP is concerned, Tripura had the highest growth
at 8.4 per cent during 2000–3 and Manipur had the lowest growth
of –1.5 per cent. Tripura, Uttarakhand, Arunachal Pradesh, Sikkim,
Nagaland, Mizoram, Himachal Pradesh and Meghalaya (in descending
order) had per capita SDP growth higher than the group average. All
the states except Arunachal Pradesh, Tripura and Mizoram witnessed
growth acceleration during 2004–8 compared to 2000–3. Uttarakhand
had the highest per capita SDP growth of 12.8 per cent and Assam the
lowest growth of 2.7 per cent during 2004–8. Uttarakhand, Himachal
Pradesh, Sikkim and Tripura (in descending order) had per capita SDP
growth higher than the group average during 2004–8. Unlike the GCS
which experienced growth deceleration as a group in 2009–12, there
was growth acceleration for the SCS compared to 2004–8. Except
Himachal Pradesh and Uttarakhand, all the other states improved upon
their growth momentum in the post-crisis period compared to 2004–8.
Sikkim, during 2009–12, had the highest per capita SDP growth of 23.2
per cent and Jammu and Kashmir had the lowest growth rate of 4.4
per cent during 2009–12. Sikkim, Uttarakhand, Tripura and Mizoram
(in descending order) had per capita SDP growth higher than the
group average. The range of per capita SDP growth across the states has
remained higher in the SCS category compared to the GCS category in
all the three sub-periods. In fact the range of growth across states has
increased in the successive two sub-periods compared to 2000–3. Sikkim,

Uttarakhand and Tripura had growth rates of per capita SDP higher than
the group average in all the three sub-periods.
UTs
Amongst the UTs, Chandigarh had the highest SDP growth of 10.5
per cent and Andaman and Nicobar Islands had the lowest growth of
3.8 per cent during 2000–3. Pondicherry, in addition to Chandigarh,
had an SDP growth rate higher than that for the group. Except for
Pondicherry, the remaining three states in the UT category had growth
acceleration in the 2004–8 period compared to 2000–3. Growth of
SDP for the UTs as a group increased significantly from 5.6 per cent
in 2000–3 to 10.9 per cent during 2004–8. Delhi had the highest SDP
growth of 11.2 per cent and Pondicherry had the lowest growth rate of
7.3 per cent during 2004–8. Only Delhi had a growth rate higher than
that of UTs as group during 2004–8. There was a marginal decline in
the SDP growth of UTs as a group in 2009–12 compared to 2004–8. In
2009–12 period, only Pondicherry had a higher growth rate compared
to 2004–8 period and all other states experienced a decline in their
growth rates. Delhi only had a growth rate higher than that of the
group during 2009–12. The range of growth observed across states
within the UTs has declined in the subsequent two periods beginning
with 2000–3.
Amongst UTs, Delhi had the highest population growth of 3.4 per
cent during 2000–3 and Pondicherry the lowest growth rate of 1.9 per
cent during 2000–3. Except for Delhi, the remaining three states had
a lower population growth than that for the UTs as a group during
2000–3. Thus, Delhi was an outlier as far as population growth is
concerned, and it inflated the population growth of UTs as a group
during 2000–3. The population growth of Delhi declined and that of
Chandigarh increased significantly to 1.4 per cent and 5.2 per cent,
respectively, during 2004–8. Only Delhi had a population growth
rate lower than that for the UTs as a group during 2004–8. The popu-
lation growth rate increased for Andaman and Nicobar Islands and
Chandigarh during 2004–8 compared to 2000–3. The population
growth rate of Chandigarh declined, but it still continued to have the
highest growth rate during 2009–12, whereas the population of Delhi
grew at the slowest pace during 2009–12. Again, only Delhi had a
slower population growth than UTs as a group. The range of popula-
tion growth across the different UTs increased significantly in 2004–8
compared to 2000–3. The population of Delhi and Chandigarh grew
at faster rate during 2009–12 compared to 2004–8. The range of popu-

lation growth also increased marginally during 2009–12 compared to
2004–8.
As far as per capita SDP is concerned, Pondicherry had the highest
growth of 7.75 per cent and Delhi had the lowest growth of 1.65 per
cent during 2000–3. Only Pondicherry and Chandigarh had per capita
SDP growth rates higher than that of the UTs as a group during 2000–3.
Delhi and Andaman and Nicobar Islands increased their per capita SDP
at higher rates during 2004–8 compared to 2000–3. Delhi, which had
the lowest per capita SDP growth turned out to have the highest per
capita SDP growth, but Pondicherry replaced Delhi in having the lowest
per capita SDP growth during 2004–8 compared to 2000–3.
Delhi had a per capita SDP growth rate higher than that of the UTs as
a group during 2004–8. Delhi continued to grow at the fastest pace of 9
per cent, and Chandigarh grew at the lowest pace of 2.5 per cent during
2009–12. Delhi was the only UT where per capita SDP grew at a higher
pace than that of UTs as group.
Ranking on the basis of level and growth of PCI

While ascertaining the performance of states in a relative context,
considering the Per capita income (PCI) levels as well as the growth of
PCI would give a better idea of their performance. However, if the rank-
ings based on level and growth have a very high order of correlation,
one can do with rankings based on either. Pearson’s correlation coef-
ficient between the rankings based on growth and level are statistically
not significant at 5 per cent level of significance, suggesting that the
rankings based on levels of PCI and rankings based on growth of PCI
do not agree. As such we consider the rankings based on both PCI and
growth of PCI. We have assigned equal weights to the ranking on the
basis of level of PCI and growth of PCI and labelled it as overall rank.
Within the GCS, the overall rank during the entire period of study was
the highest for Gujarat, followed by Haryana. Uttar Pradesh had the
lowest overall rank preceded by Madhya Pradesh and Jharkhand.
When we consider the evolution of overall rank during various
sub-periods, we find that the rankings have not changed for Bihar,
Gujarat, Haryana, Kerala and Odisha, whereas the rank has declined
successively only for Punjab in the two sub-periods following
2000–3.
Within the SCS, Sikkim had the highest overall rank and Assam
and Manipur shared the bottommost rank for the entire period of
study. As many as six states witnessed a decline in the 2004–8 period
Table 3.3 Ranking of states based on level and growth per capita SDP
2000–3 2000–3 2000–3 2004–8 2004–8 2004–8 2009–12 2009–12 2009–12 2000–12 2000–2012 2000–2012
Level Growth Overall Level Growth Overall Level Growth Overall Level Growth Overall
Rank Rank Rank Rank Rank Rank Rank Rank Rank Rank Rank Rank
GCS
Andhra Pradesh 9 3 3 9 3 5 9 3 5 9 4 5
Bihar 17 5 12 17 5 12 17 5 12 17 10 14
Chhattisgarh 12 7 11 11 7 10 11 7 11 11 8 10
Goa 1 14 8 1 14 7 1 14 7 1 13 7
Gujarat 6 6 3 4 6 3 4 6 3 4 1 1
Haryana 2 1 1 3 1 1 3 1 1 2 5 2
Jharkhand 13 15 15 14 15 15 14 15 14 14 14 15
Karnataka 8 8 9 8 8 9 8 8 8 8 9 9
Kerala 5 2 2 5 2 2 6 2 2 6 7 5
Madhya Pradesh 14 17 17 15 17 17 15 17 17 15 15 16
Maharashtra 4 9 5 2 9 4 2 9 4 3 6 3
Odisha 15 12 13 13 12 13 12 12 13 13 3 8
Punjab 3 10 5 5 10 7 7 10 10 5 16 11
Rajasthan 11 16 13 12 16 14 13 16 14 12 12 13
Tamil Nadu 6 11 10 7 11 10 5 11 8 7 2 3
Uttar Pradesh 16 13 16 16 13 15 16 13 14 16 17 17
West Bengal 10 4 7 10 4 6 10 4 6 10 11 11
SCS
Arunachal 5 3 3 5 7 6 6 7 6 5 5 4
Pradesh
Assam 11 9 10 11 11 11 11 6 9 11 10 10
Himachal 2 7 4 1 2 1 2 5 3 1 4 2
Pradesh
Jammu & 7 10 9 9 8 9 9 11 10 9 9 9
Kashmir
Manipur 10 11 11 10 10 10 10 10 10 10 11 10
Meghalaya 5 8 8 6 5 5 7 8 8 7 6 8
Mizoram 4 6 6 7 9 8 5 4 4 5 7 7
Nagaland 1 5 1 2 6 4 4 9 6 2 8 4
Sikkim 3 4 2 3 3 3 1 1 1 2 1 1
Tripura 8 1 4 8 4 6 8 3 5 8 3 6
Uttarakhand 9 2 7 3 1 2 3 2 2 4 2 3
compared to 2000–3 and four states in 2009–12 compared to 2004–8

in their overall rank.
3.2 Sectoral growth performance
When we consider sectoral growth for all the states taken together across
the three time periods, it is found that the growth of the services sector
was the highest during the 2000–3 and 2004–8 periods. It was only
during 2004–8 that the growth of the secondary sector outpaced that
of the tertiary sector.6 Growth of the primary sector for all the states
at 0.2 per cent during 2000–3 increased to 4.5 per cent in 2004–8 and
decelerated a bit to 4.4 per cent in 2009–12. Notwithstanding the better
growth performance during 2004–8, growth of the primary sector was
the lowest in all the three time periods.
Sectoral growth across states

The primary sector grew at the slowest pace amongst the three broad
sectors in all sub-periods as well as during the entire period of study.
Growth of the tertiary sector outpaced that of the secondary sector for
the GCS during the low-growth and post-crisis period as well for the
entire period of study. In the high-growth phase of 2004–8, growth of the
secondary sector outpaced that of the tertiary sector for the GCS. In the
SCS category, the secondary sector’s growth was higher than that of the
tertiary sector during 2000–3, 2004–8 and the entire period of study. Only
during 2009–12, tertiary sector grew at a faster pace than the secondary
sector. For the UTs, the tertiary sector’s growth was faster than that of the
secondary sector in all the periods except 2000–3. Tertiary sector growing
at the fastest pace was followed by the secondary and the primary sector in
that order in all three categories of sates during 2009–12.
As far as relative growth of agriculture, manufacturing and industry is
concerned, manufacturing growth was the highest, followed by industry
and agriculture in 2000–3 for GCS. In the subsequent two periods as well
as during the entire period of study, industry grew at the fastest pace,
followed by agriculture and manufacturing. However, for the SCS in all
the sub-periods as well as during the entire period of study, growth of
industry was the highest, followed by agriculture and manufacturing. In
the case of UTs, industry grew at the fastest pace, followed by manufac-
turing and agriculture during 2000–3 and 2004–8 and the entire period
of study. Only during 2009–12 did agriculture grow at the fastest pace,
followed by Industry and manufacturing.
GCS
At the level of individual states, except for Bihar, Kerala and West Bengal, all
states experienced growth acceleration in the high-growth phase compared
to the low-growth phase. However, only five states – Chhattisgarh,
Gujarat, Madhya Pradesh, Rajasthan and Uttar Pradesh – could improve
their growth in the primary sector in the post-crisis period compared to
the high-growth phase. Kerala, which had undergone a growth decelera-
tion in the 2004–8 period compared to 2000–3, also improved its growth
performance in the 2009–12 period compared to the 2004–8 period. Thus,
sustained improvement in primary sector growth is observed for only five
states in the subsequent two periods compared to 2000–3.
As far as growth of the secondary sector is concerned, all 17 states
recorded improved growth performance in 2004–8 compared to 2000–3.
However, only four states – Bihar, Goa, Jharkhand and Tamil Nadu –
could improve their growth performance in 2009–12 compared to
2004–8.
As with the secondary sector, growth of the tertiary sector improved
in all the states in the 2004–8 period compared to the 2000–3 period.
However, only eight states – Bihar, Chhattisgarh, Goa, Jharkhand,
Madhya Pradesh, Punjab, Rajasthan and Uttar Pradesh – could further
improve upon their growth of the secondary sector in the 2009–12
period compared to the 2004–8 period.
SDP growth improved for all the states in the 2004–8 period compared
to the 2000–3 period. However, only eight states – Bihar, Goa, Jharkhand,
Madhya Pradesh, Rajasthan and West Bengal – could improve their SDP
growth in 2009–12 compared to 2004–8.
SCS
As far as the SCSs are concerned, growth of the secondary sector was
higher than that of the tertiary sector, both during the low growth and
high-growth phases as well as in the entire study period. Growth of the
tertiary sector was higher than that of the secondary sector only in the
post-crisis period.
At the level of individual states, only Arunachal Pradesh, Assam,
Manipur, Mizoram, Tripura and Uttarakhand had higher primary sector
growth in 2004–8 compared to 2000–3. None of these six states could
improve their primary sector growth in 2009–12 compared to 2004–8.
Instead, all five states that had undergone a growth deceleration in the
primary sector in 2004–8 compared to 2000–3, reported growth accel-
eration in 2009–12 compared to 2004–8.
Growth of the secondary sector improved in the 2004–8 period

compared to the 2000–3 period for five states – Himachal Pradesh, Jammu
and Kashmir, Manipur, Meghalaya and Uttarakhand. The improved
growth performance of these five states could not be sustained, however,
and all these states experienced growth deceleration in the 2009–12
period compared to their performance in 2004–8 period. Only four
states – Assam, Mizoram, Sikkim and Tripura – reported better growth
of the secondary sector in 2009–12 compared to 2004–8. However,
two states, Arunachal Pradesh and Nagaland, have undergone succes-
sive growth deceleration in 2004–8 and 2009–12 compared to 2000–3.
Unlike the primary and secondary sectors, improved growth perform-
ance in 2004–8 compared to 2000–3 was more pervasive in the tertiary
segment. Except Mizoram and Tripura, the remaining nine had higher
tertiary sector growth in 2004–8 compared to 2000–3. Six out of these
nine states further improved their growth performance in the 2009–12
period. In addition to these six states, Mizoram and Tripura posted better
growth performance in 2009–12 compared to 2004–8.
Except Mizoram, Nagaland and Tripura, the remaining eight states
posted better SDP growth in 2004–8 compared to 2000–3. Of these eight
states, Arunachal Pradesh, Assam, Manipur, Meghalaya and Sikkim
further improved their growth performance in the 2009–12 period. In
addition to these five states, Mizoram and Tripura posted higher growth
performance during 2009–12 compared to 2004–8.
UTs
As far as UTs are concerned, the secondary sector grew at a higher
pace than did the tertiary sector during 2000–3. In the subsequent two
periods as well as the entire period of study, growth of the tertiary sector
was higher than that of the secondary sector.
Primary sector growth improved for Chandigarh and Pondicherry in
2004–8 compared to 2000–3. Andaman and Nicobar Islands and Delhi,
which had experienced growth deceleration in the primary sector in
2004–8, reported higher growth of the primary sector in 2009–12.
Except for Pondicherry, the other three states reported higher
secondary sector growth in 2004–8 compared to 2000–3. In the 2009–12
period only Pondicherry experienced higher growth compared to
the 2004–8 period, and the remaining three states reported growth
deceleration in the secondary sector. In the tertiary sector, except for
Chandigarh, the other three states reported growth acceleration in the
2004–8 period compared to the 2000–3 period. Of these three states,
only Andaman and Nicobar Islands improved their growth performance
in the 2009–12 period in the tertiary sector. Tertiary sector growth, which
had decelerated in Chandigarh during 2004–8, further decelerated in
the 2009–12 period. Andaman and Nicobar Islands, Chandigarh and
Delhi experienced growth acceleration in SDP during 2004–8 compared
to 2000–3. SDP growth in all these states decelerated in the 2009–12
period compared to the 2004–8 period. Only Pondicherry, for which
SDP growth had decelerated in 2004–8 compared to 2000–3, reported a
growth acceleration in 2009–12 compared to 2004–8.
Sectoral shares
That India has graduated from a predominantly agricultural economy
to a service-led economy and the industrial revolution has bypassed it
has been a matter of recurring debate. Papola (2005) provides a brief
overview of the state of the debate and also his own perspective on the
sustainability of a services-led growth. Despite higher growth, pressure
on agriculture for employment persists. The government came out with
a road map in 2011 to increase the share of manufacturing from 16 per
cent to 25 per cent in the next ten years to alleviate the pressure on agri-
culture. In this connection, we chronicle the tendencies for structural
transformation across the states in the high-growth phase of 2004–8
compared to the reference period 2000–3, and in 2009–12 compared
to 2004–8 when growth decelerated. While at the all-India level, the
tertiary sector contributed more than half of the GDP in the 2000–12
period, the amplitude of its contribution varies across different catego-
ries of states. For instance, the tertiary sector’s share to SDP is around
51 per cent for the GCS compared to 47 per cent for the SCS and 80
per cent for the UTs.
During the entire period, as well in the three sub-periods of study, we
find the tertiary sector accounts for the largest share in state output, a
pattern which is also observed at the all-India level. At the all-India level,
the share of the tertiary sector was followed by that of the secondary and
primary sectors in different sub-periods as well as during the entire period
of study. However, as far as the contributions of the other two sectors in
the different categories of states are concerned, two broad patterns are
found. For the GCS and UTs, the contribution of the tertiary sector is the
highest, followed by the secondary and primary sectors in all the time
periods. However, for the SCS we find the share of the tertiary sector has
been the highest, followed by the primary and secondary sectors in the
first two sub-periods and during the entire period of study. However,
in 2009–12 sub-period, the tertiary sector has the largest share in SDP,
followed by the secondary and primary sectors.
Between agriculture and manufacturing, we find the share of the

former is higher than that of the latter for the SCS in all the time periods.
Agriculture also has a higher share than manufacturing for the GCS in
all the time periods except for the sub-period 2000–3. Manufacturing
had a larger share than agriculture for the GCS during 2000–3 and for
the UTs during 2000–3 and 2004–8. However, agriculture had a larger
share than manufacturing for the UTs during the 2009–12 period.
When we consider the broader groups of industry and agriculture, we
find that share of industry was higher than that of agriculture for the
GCS, SCS and UTs in all the three sub-periods as well as in the entire
period of study.
If we consider the importance of different sectors across categories of
states, we find agriculture and primary sector accounted for the highest
share in SDP for the SCS followed by GCS and UTs in all the sub-periods
as well as during the entire study period. The share of secondary sector
in output was highest for GCS followed by SCS and UTs during 2000–3,
2004–8 and also for the entire period of study. In the 2009–12 period,
the secondary sector had the largest share in output in the SCS, followed
by the GCS and the UTs.
When we look at the share of the tertiary sector in SDP, we find that
UTs had largest share followed by GCS and SCS in all the sub-periods as
well as during the entire period of study.
At the level of individual states within the GCS, only in two states,
Madhya Pradesh and Rajasthan, did the share of primary sector increase
marginally in 2004–8 compared to 2000–3. The primary sector’s share in
Jharkhand increased a bit during 2009–12 over 2004–8. Thus, for as many
as 14 states, the share of the primary sector in the SDP declined consist-
ently in the two sub-periods following 2000–3. Chhattisgarh continued
to have the largest share of the primary sector in SDP amongst all the
states in the GCS category across the three sub-periods. However, the
absolute value of the primary sector’s share declined from 35.6 per cent
to 33.3 per cent during 2004–8 and to 28.7 per cent during 2009–12.
On the other hand, Maharashtra, which had the smallest primary sector
share in the SDP during 2000–3 at 13.5 per cent, was replaced by Tamil
Nadu with 11.3 per cent during 2004–8. However, during 2009–12
Maharashtra had again replaced Tamil Nadu in having the smallest
primary sector share of 8.7 per cent in the SDP.
Except Goa, which witnessed a marginal fall, the share of the
secondary sector in SDP improved for all the states during 2004–8
compared to 2000–3. Only for 8 out of these 16 states – Andhra Pradesh,
Bihar, Chhattisgarh, Gujarat, Madhya Pradesh, Odisha, Punjab and
Uttar Pradesh – the share of secondary sector further increased during

2009–12. Thus, for the majority of states, their share of the secondary
sector in SDP declined in the post-crisis period compared to the
high-growth phase. In 2009–12, however, except for Goa, Haryana,
Jharkhand and Tamil Nadu, all the states had higher secondary sector
share in SDP compared to 2000–3. Bihar had the smallest secondary
sector share in SDP at 12.9 per cent and Goa the largest share at 42
per cent during 2000–3. Though the share of the secondary sector in
SDP of Bihar increased to 14.7 per cent during 2004–8 and 18.8 per
cent during 2009–12, it continued to have the smallest share in SDP
amongst GCSs. Goa retained its topmost position as regards the share
of secondary sector in SDP during 2004–8. However, Gujarat replaced
Goa in having the largest share of the secondary sector in SDP at 39.2
per cent during 2009–12.
Except for Chhattisgarh, Gujarat, Madhya Pradesh and Rajasthan, the
share of the tertiary sector in SDP increased for 13 states within the GCS
during 2004–8 compared to 2000–3. However, the share of the tertiary
sector in SDP improved for all states during 2009–12 compared to both
20004–8 and 2000–3. Jharkhand had the smallest share of the tertiary
sector in SDP at 33 per cent and Kerala had the largest share at 58.2
per cent during 2000–3. Chhattisgarh replaced Jharkhand in having the
lowest share of the tertiary sector in SDP at 34.2 per cent and Kerala
increased the share of the tertiary sector in SDP to 61.5 per cent and
continued to have the largest share amongst states within the GCS
during 2004–8. The share of the tertiary sector in SDP increased for both
Chhattisgarh and Kerala to 36.6 per cent and 67.9 per cent and they
continued to represent, respectively, the states with the smallest and the
largest shares.
At the level of states within the SCS, for all except Nagaland, the share
of the primary sector in SDP declined in 2004–8 compared to 2000–3.
Compared to the 2004–8 period, the share of the primary sector declined
for all states except Manipur during 2009–12. Thus there was a contin-
uous decline in the share of the primary sector in SDP between 2004–8
and 2009–12 compared to 2000–3 for nine states. Arunachal Pradesh
and Sikkim had the largest and smallest share of the primary sector in
SDP amongst all states during 2000–3. Though the share of the primary
sector in SDP declined continuously across the sub-periods of 2004–8
and 2009–12 for these two states, they retained their positions as having,
respectively, the largest and smallest primary sector shares in SDP.
The share of the secondary sector in SDP increased for all the states
during 2004–8 compared to 2000–3. Except for Assam, Jammu and
Kashmir and Manipur, the remaining eight states further increased the
share of the secondary sector in SDP during 2009–12. Nagaland had the
smallest share of the secondary sector in SDP in all three sub-periods.
Himachal Pradesh had the largest share of the tertiary sector in SDP
during the first two sub-periods, but Sikkim replaced Himachal Pradesh
as having the largest share in 2009–12.
All states except Assam, Himachal Pradesh, Jammu and Kashmir and
Mizoram reported a decline in the tertiary sector’s share in SDP during
2004–8 compared to 2000–3. However, all states except Sikkim expe-
rienced an increase in the share of the tertiary sector in SDP during
2009–12 compared to 2004–8. Only Sikkim reported a successive decline
in the share of the tertiary sector in SDP in the two sub-periods following
2000–3. Arunachal Pradesh and Mizoram respectively had the smallest
and largest tertiary sector shares in SDP amongst all the states in all three
sub-periods.
All the UT states experienced decline in the share of the primary
sector in SDP during 2004–8 compared to 2000–3. During 2009–12
only Andaman and Nicobar Islands and Pondicherry had increases in
the share of the primary sector in SDP compared to 2004–8. However,
between 2009–12 and 2000–3, all the UTs reported declines in the
share of the primary sector in SDP. Andaman and Nicobar Islands and
Chandigarh, respectively, had the largest and smallest shares of the
primary sector in SDP amongst the four UTs across all the sub-periods.
Only Andaman and Nicobar Islands and Chandigarh could increase
the share of the secondary sector in SDP during 2004–8 compared
to 2000–3. However, none of the UTs could raise the share of the
secondary sector in SDP in the 2009–12 period compared to 2004–8.
Pondicherry had the largest share of the secondary sector in SDP in
all the sub-periods. However, Andaman and Nicobar Islands, which
had the lowest share of the secondary sector in SDP amongst the four
UTs during 2000–3, was replaced by Delhi during 2004–8 and during
2009–12 Chandigarh had the lowest share. As far as the share of the
tertiary sector in SDP is concerned, Delhi and Pondicherry witnessed
continuous increases from 2004–8 to 2009–12 compared to 2000–3.
For Chandigarh the share had declined in 2004–8 compared to 2000–3
but increased during 2009–12 compared to 2004–8. The share of the
tertiary sector in SDP declined successively in the subsequent two
time periods for Andaman and Nicobar Islands compared to 2000–3.
Chandigarh had the highest share of the tertiary sector in SDP and
Pondicherry the lowest share in all the sub-periods.
3.3 Sectoral contribution to growth
In the preceding sections we have discussed the growth of different sectors

across the states and the changing shares of different sectors in the SDP
in the two sub-periods compared to 2000–3. The discussion on the share
of different sectors in SDP and their growth leads us to comment on the
relative importance of different sectors for the growth of different catego-
ries of states and how the same has changed over time.
When we look at the combined figures for all the states, the serv-
ices sector contributed 60.9 per cent of growth in GDP during 2000–12,
followed by the secondary sector with 29.3 per cent and the primary
sector with 9.8 per cent. The pre-eminence of the tertiary sector in the
growth of output is shared by GCS, SCS and UTs. However, the impor-
tance of the services sector has been relatively low for the GCS and the
SCS, at less than 60 per cent during 2000–12. The contribution of the
services sector was the highest, at 85 per cent, to the growth in UTs
during 2000–12. Contributions of the secondary and primary sectors
were the highest for the GCS and the SCS, at around 44.4 per cent and
10.5 per cent, respectively, during 2000–12. Has the sectoral contribu-
tion to growth across categories of states remained the same during
different time periods of our study?
At the all-India level, contribution of the primary sector to growth
decreased in 2009–12 when compared to 2004–8. However, the contri-
bution of the primary sector increased in the 2004–8 period compared
to the 2000–3 period. This pattern of contribution of the primary sector
to growth was also found for SCS as group. For the GCS as a group,
the contribution of the primary sector to growth was 5.9 per cent in
2000–3. The contribution of the primary sector declined to –3.6 per cent
during the high-growth phase. However, the share of the primary sector
increased to 2.5 per cent in the post-crisis period. A similar pattern
was also found for UTs. For the UTs as a group, the contribution of the
primary sector was negligible at –0.1 per cent in 2000–3, which declined
further to –0.2 per cent during 2004–8 but increased to 0.8 per cent
during 2009–12.
As far as the secondary sector is concerned, its contribution to growth
increased at the all-India level in 2004–8 compared to 2000–3, but
decreased in the 2009–12 period compared to 2004–8. The all-India
pattern is observed in the case of both GCS and SCS as a group. The
increase in the contribution during the high-growth phase and the
decrease during the post-crisis period was quite sharp for the GCS
compared to the SCS. Only for the UTs as a group did the contribution
of the secondary sector fall continuously in the 2004–8 and 2009–12
periods compared to 2000–3.
The tertiary sector’s contribution to growth at the all-India level
declined in the 2004–8 period compared to the 2000–3 period. However,
its contribution to growth was higher in 2009–12 compared to 2004–8.
This pattern at the all-India level is also observed in the cases of GCS
and SCS. Only in the case of the UTs did the contribution of the tertiary
sector to growth decrease successively during 2004–8 and 2009–12
compared to the 2000–3 period.
3.4 Variability of output
While growth per se is important, its stability is equally a matter of

concern. We now discuss the stability of growth across the regions in
the three time periods. At the all-India level, variability of total output
increased in 2004–8 compared to 2000–3 and declined in the 2009–12
period compared to 2004–8. This pattern of volatility is also shared by
GCS, SCS and UT as groups. At the level of states, except for Bihar and
Madhya Pradesh in the GCS category and Assam, Mizoram and Sikkim
in the SCS category, all of the states in each category exhibited the same
volatility pattern observed at the group level. Bihar, Madhya Pradesh,
Assam, Mizoram and Sikkim experienced continuously higher volatili-
ties in the SDP in the sub-periods following 2000–3.
From a sectoral perspective, variability in the primary sector’s output
for all states increased in the 2004–8 period compared to 2000–3 and
declined in the 2009–12 period compared to 2004–8. This pattern was
shared only by the GCS as a group. At the state level, all states except
Bihar, Chhattisgarh, Gujarat, Madhya Pradesh and Rajasthan displayed
a similar volatility pattern as observed at the group level. Of these five
states, volatility declined for Bihar and Gujarat continuously in the
sub-periods following 2000–3. The remaining three states were marked
with a decline in volatility in 2004–8 compared to 2000–3, but had
increased volatility in 2009–12 compared to 2004–8.
The variability of the primary sector output, however, has increased
continuously in the 2004–8 and 2009–12 compared to 2000–3 in the SCS
and UT as groups. Only four states – Arunachal Pradesh, Assam, Manipur
and Uttarakhand – within the SCS category shared the volatility pattern
observed at the group level. In Meghalaya and Sikkim, volatility declined
successively in the two sub-periods following 2000–3. In the remaining
five states, volatility declined in the 2004–8 period compared to 2000–3
and increased during 2009–12 compared to 2004–8. At the level of indi-

vidual states within the UTs, only Delhi and Pondicherry exhibited the
same volatility pattern as found at the group level. For Chandigarh, vola-
tility declined in the 2004–8 period compared to 2000–3 and increased
during 2009–12 compared to 2004–8. Andaman and Nicobar Islands
displayed a volatility pattern opposite to that of Chandigarh.
The variability of the secondary sector’s output increased at the
all-India level as well in all three categories of states in 2004–8 compared
to 2000–3. The variability, however, declined at the all-India level as
well as for GCS, SCS and UT as groups in 2009–12 compared to 2004–8.
Except Jharkhand, where the volatility of the secondary sector’s output
declined successively in the two sub-periods following 2000–3, all other
GCS category states exhibited the same volatility pattern as observed at
the group level.
Within the SCS, Arunachal Pradesh and Nagaland witnessed continu-
ously declining volatility in the two sub-periods following 2000–3.
While Himachal Pradesh, Jammu and Kashmir, Manipur, Meghalaya,
Mizoram and Uttarakhand displayed the same volatility pattern as
observed for the SCS as a group. Assam, Sikkim and Tripura had just the
opposite volatility pattern as that observed at the group level. Within
the UTs, except for Pondicherry, the remaining three states displayed
the volatility pattern observed for the group. Pondicherry had a vola-
tility pattern just opposite to that of the group.
The variability in the tertiary sector output increased in the 2004–8
period compared to 2000–3 at the all-India level and also in the GCS,
SCS and the UTs. However, the variability of the tertiary sector’s output
declined at the all-India level and also in all three categories of states
in the 2009–12 period compared to 2004–8. Within the GCS, Bihar,
Chhattisgarh, Goa, Jharkhand and Madhya Pradesh exhibited succes-
sive volatility increases in the two sub-periods following 2000–3, and
the remaining 12 states displayed a volatility pattern observed at the
group level. Within the SCS, Arunachal Pradesh, Assam, Himachal
Pradesh, Manipur, Meghalaya, Sikkim and Tripura displayed increasing
volatility in the two sub-periods following 2000–3, and three states –
Jammu and Kashmir, Nagaland and Uttarakhand – displayed a volatility
pattern observed at the group level; only Sikkim had the reverse vola-
tility pattern. Except for Andaman and Nicobar Islands, the other three
states in the UT category displayed a volatility pattern similar to that
observed for the group. In the case of Andaman and Nicobar Islands, the
volatility of the tertiary sector output increased successively in the two
sub-periods following 2000–3.
The broad pattern that we find is one of increased volatility in the

majority of the states in the secondary and tertiary sectors as well as
in total output in 2004–8 compared to 2000–3. Thus, the phase of
high-growth was also one of increased volatility. However, the 2009–12
period was one in which the secondary and tertiary sector output
witnessed lower volatility compared to the 2004–8 period.
3.5 Contribution of states to growth in GDP and

population
Growth in states would make more sense if we consider also their share in
the country’s output and population. A higher growth for a state, which
accounts for a larger share in the country’s GDP, augurs well for the
stability of growth. A state with a higher population share growing faster
can have positive welfare implications for the country. In this section,
we first consider the changing share of different categories of states in
the combined SDP and population, and then examine how their contri-
bution to growth in combined SDP and population has performed.
Shares in combined SDP and population

We find the GCS (90.2 per cent) had the largest share in the combined
SDP of all the regions under study, followed by SCS (5.8 per cent) and UT
(4.0 per cent) during 2000–3.
The growth of SDP in GCS and UTs was considerably high during
2004–8, but the highest growth, at about 11 per cent, was observed
in UTs compared to 9.3 per cent for the GCS and 7.2 per cent for SCS.
Thus, we find UTs increased their share in the combined SDP to 4.2
per cent in 2004–8. The share of both GCS and SCS declined, but the
decline was relatively larger in the case of SCS (14 bps) compared to
the GCS (6 bps) during 2004–8. In 2009–12, the growth of SDP in
GCS decelerated to 8.4 per cent and that of SCS accelerated to 8.6 per
cent and growth momentum marginally declined for the UTs to 10.6
per cent. Despite the slight deceleration in growth, the UTs’ share
in the combined SDP increased to 4.7 per cent in 2009–12. Except
for Pondicherry, the other three UTs succeeded in increasing their
share in the combined SDP in the two sub-periods following 2000–3.
Pondicherry experienced successive declines in its share in the two
The share of both GCS and SCS again declined in 2009–12
compared to 2004–8. However, unlike during 2004–8, the share of
GCS dipped by 46 bps compared to only 6 bps for the SCS in 2009–12.
Notwithstanding the decline in the share of GCS in the combined

output in the two sub-periods following 2000–3, we find eight states –
Andhra Pradesh, Chhattisgarh, Gujarat, Haryana, Maharashtra,
Odisha and Tamil Nadu – could continuously raise their shares in the
combined SDP in the two sub-periods following 2000–3. Similarly
with the SCS, Arunachal Pradesh, Sikkim, and Uttarakhand could
successively increase their shares in the combined SDP in the two
In terms of share in the combined population GCS were followed by
SCS and UTs in all three sub-periods. The share of different categories
of states has also remained fairly stable across the three sub-periods.
Between 2009–12 and 2000–3, the share of GCS declined and that of UTs
increased by 8 bps. However, at the level of states, as many as ten states
in the GCS category, five states in the SCS category and all states in the
UT category experienced a small but unabated increase in their share of
population in the two sub-periods following 2000–3.
Contribution to growth
The GCS contributed the most (84.4 per cent) to the growth in
combined SDP of all the states during 2000–3, followed by SCS (9.1
per cent) and the UTs (6.6 per cent). The contribution of different
categories of states to the combined population growth in descending
order were GCS (90.8 per cent) followed by SCS (6.4 per cent) and
UTs (2.8 per cent) during 2000–3. The contribution of the GCS to the
growth of combined SDP increased significantly, and that of SCS and
UTs declined in 2004–8 compared to 2000–3. In 2004–8, UTs replaced
SCS as the second-largest contributor to the growth in combined
output of all the states. In 2009–12, the contribution of GCS in the
growth of combined SDP declined and that of SCS and UTs increased.
UTs continued to be the second-largest contributor to combined SDP
growth during 2009–12.
Notwithstanding the decline, the contribution of GCS as a group to
combined SDP growth was higher in 2009–12 compared to 2000–3.
Within the GCS, as many as ten states increased their contributions
to combined SDP growth during 2004–8 compared to 2000–3. The
most noticeable amongst these states were Maharashtra, Tamil Nadu
and Kerala, which increased their contribution, respectively, by 7, 6.7
and 3.2 percentage points. During 2004–8, there was a decline in the
contribution of six states, of which West Bengal, Haryana and Kerala
were most prominent, witnessing a dip of 5.9, 3.5 and 2.3 percentage
points respectively. Though the contribution of GCS as a group declined

marginally during 2009–12 compared to 2004–8, as many as 11 states
improved their contributions to combined SDP growth. As many as six
states – Chhattisgarh, Goa, Gujarat, Jharkhand, Madhya Pradesh and
Rajasthan – could increase their contributions successively in the two
Within the SCS category, except for Manipur all the states witnessed a
decline in their contributions to combined SDP growth during 2004–8
compared to 2000–3. Except for Nagaland and Jammu and Kashmir, the
other nine states improved their contributions to combined SDP growth
during 2009–12 compared to 2004–8. Though from a very low base,
Manipur is the only state in this category which continuously increased
its contributions in the two sub-periods following 2000–3.
The contribution of each individual state within the UT category
declined in the 2004–8 period compared to 2000–3. However, all states
except Chandigarh improved their contributions to the combined
SDP growth during 2009–12 compared to 2004–8. The order in which
different categories of states contributed to combined population growth
has remained the same in the subsequent two time periods compared to
2000–3, though the proportions have changed.
We find the GCS, which had the largest contribution to population
growth as a group, increased its share to 92.2 per cent in the 2004–8
period from 90.8 per cent during 2000–3. The increase in the contribu-
tion of GCS to the combined population growth has been compensated
for by a significant fall in the contribution of UTs and a marginal decline
in the contribution of SCS during 2004–8. In the 2009–12 period, the
contributions of both GCS and SCS fell in the combined population
growth, but that of the UTs increased by 1 percentage point compared
to the 2004–8 period.
Chhattisgarh, Goa, Maharashtra, Punjab, Odisha and Uttar Pradesh in
the GCS category, Manipur, Mizoram, Tripura and Uttarakhand in the
SCS category and all the UTs except Delhi increased their contribution
to the all-India population growth successively in the two sub-periods
following 2000–3.
3.6 Conclusion
India experienced one of the best phases of its economic growth during
2004–8, when economic growth averaged 9 per cent per annum. This
high growth was accompanied by an increase in the domestic savings
and investment rates, thereby attesting to the durability of growth.

However, the onset of the global financial crisis led to a deceleration
in the growth rate in the subsequent three-year period for which data
are available. The deceleration in growth rate is characterized by a
decline in the investment rate and, thus, raises doubts whether growth
momentum can be revived in the near future. However, the government
took up a number of investor-friendly measures and addressed some of
the long-pending issues which constrain growth.
Against this backdrop, the present chapter traversed the growth expe-
rience of states, classified into three broad categories over the period
2000–2012 along with three sub-periods, particularly 2000–3, 2004–8
and 2009–12. The growth experience suggests all the three categories of
states shared the benefits of high growth during 2004–8. Growth acceler-
ated for all three categories of states in the high-growth phase of 2004–8
compared to 2000–3. The acceleration was quite sharp for the GCS and
UTs. In the post-crisis period, all three categories of states as groups
underwent deceleration in growth, but deceleration was marginal for
the UTs and rather sharp for the SCS compared to their performance in
the 2004–8 period. More importantly, all three categories of states were
much better placed in terms of SDP and per capita SDP growth during
2009–12 compared to 2000–3.
The sectoral growth performance across the different categories of
states suggest that growth was the highest in the tertiary sector followed
by that in the secondary and primary sectors in the sub-periods of
2000–3 and 2009–12 for the GCS. During 2004–8, growth of the
secondary sector was the highest, followed by the tertiary and primary
sectors in the GCS. The tertiary sector grew at the fastest pace followed,
by the secondary and primary sectors during 2000–3 and 2004–8 for
the SCS. Growth of the tertiary sector outpaced that of the secondary
sector, followed by the primary sector in 2009–12 for the SCS. Tertiary
sector growth was higher than that of secondary sector, followed by the
primary sector for the UTs during 2004–8 and 2009–12. The growth of
the secondary sector was the highest, followed by that of the tertiary
and the primary sectors during 2000–3 for the UTs.
The tertiary sector accounted for the largest share in the output of
different categories of states as well as at the all-India level in different
sub-periods. As far as the relative importance of the other two sectors is
concerned, we find that for the GCS and UTs, the share of the secondary
sector was higher than that of primary sector in all the time periods.
However, in the case of SCS, we find the share of the primary sector was
higher than that of the secondary sector in the first two sub-periods
and during the entire study period. In the 2009–12 sub-period, the
secondary sector had a larger share in SDP than did the primary sector.
As far as the contributions of different sectors to the overall growth in
the three categories of states are concerned, we find the contribution of
the primary sector to growth declined during 2004–8 and increased in
the 2009–12 period for GCS and UTs compared to their performance in
previous sub-periods. The reverse pattern in the contribution of primary
sector to growth was observed for the SCS. The secondary sector’s
contribution to growth increased during 2004–8 and declined during
2009–12 compared to the previous sub-periods for the GCS and the SCS
as groups. The contribution of the secondary sector to growth fell during
both 2004–8 and 2009–12 sub-periods compared to 2000–3 for the UTs.
The contribution of the tertiary sector declined in the 2004–8 phase
compared to 2000–3 and increased during 2009–12 compared to 2004–8
for the GCS and the SCS as groups. The contribution of the tertiary
sector continuously grew in the two sub-periods following 2000–3 for
the UTs.
We also find that the phase of high growth was also one of increased
volatility. There was increased volatility in the 2004–8 periods compared
to the 2000–3 period and a decline in volatility during 2009–12 compared
to 2004–8 in the secondary and tertiary sectors as well as in SDP for all
categories of states. This pattern of volatility was also shared by the GCS
in the primary sector. However, for the SCS and UTs the volatility in
primary sector output increased successively in the 2004–8 and 2009–12
sub-periods compared to 2000–3.
Given the growth performance of different categories of states in
the three time periods, we find the shares of both GCS and SCS in the
combined output of all the states continuously increased, and that of
UTs increased during 2004–8 and 2009–12 compared to the 2000–3
period. As far as the share in combined population is concerned, the
share of GCS marginally declined, and that of UTs increased and it did
not change for the SCS between 2009–12 and 2000–3.
Looking at the contribution of different categories of states to
the combined growth in output and population of all the states, we
find that GCS, SCS and UT contributed (in descending order) during
2000–3. GCS increased its contribution to the growth in both output
and population during the high-growth phase. However, there was a
reduction in the contribution of GCS to the growth of both output and
population during 2009–12. SCS and UTs which underwent decline
in their contribution to growth in combined output during 2004–8
compared to 2000–3 bounced back in 2009–12. UTs emerged as the

second-largest contributor to the growth in combined output in the
2009–12 sub-period. The contribution of SCS to the combined popula-
tion declined successively in the two sub-periods following 2000–3,
whereas the contribution of UTs that had declined in 2004–8 increased
during 2009–12.
Annex 3.1
Data issues
The State Domestic Product (SDP) data published by the Central
Statistical Organization (CSO) spreads over 17 sub-sectors. The classi-
fication of the primary, secondary and tertiary sector is based on the
following sub-sectors:
Primary Sector: Agriculture, forestry and logging, fishing and mining

and quarrying.
Secondary Sector: Registered manufacturing and unregistered manu-
facturing; construction and electricity, gas and water supplies. The sum
of the registered and the unregistered components gives the figures for
manufacturing.
Tertiary Sector: Transport (railroad and other means), storage and
communication, trade, hotel and restaurants, banking and insurance,
real estate, ownership of dwellings and business services, public admin-
istration and other services.
In addition, we can classify the three sectors – agriculture, industry

and services – as per this popular classification:
Agri-allied: Agriculture, forestry and fishing.

Industry: Secondary sector plus mining.
Services: Tertiary sector.
RBI classification puts construction as part of the tertiary sector

of services, but CSO classification puts construction as part of the
secondary sector.
Over the last few years there has been significant improvement in
the reporting of SDP data. First, we now have information on SDP
with significantly reduced lag time, and the combined SDP of all states
now accounts for a higher proportion of the GDP than it did a few
years ago. For instance, in the year 2000, combined SDP of all states
accounted for 92 per cent of the GDP. This significantly increased to
96 per cent by 2012.
Annex 3.2 Sectoral growth 2000–3
State GPRIMARY GSECONDARY GTERTIARY GSDP GAGRI GMNFG GPINDUSTRY GPOP
Andhra Pradesh 1.5 4.5 7.2 4.9 −0.5 1.0 4.2 1.0
Bihar 7.1 1.1 6.3 6.0 6.9 2.5 −1.3 2.5
Chhattisgarh 1.5 4.3 4.5 3.4 −2.3 1.4 3.6 1.4
Goa −1.1 6.2 1.3 2.7 −5.4 3.2 3.0 3.1
Gujarat 5.0 1.6 5.9 4.1 5.4 2.1 −0.2 2.0
Haryana 0.7 8.1 11.9 7.4 0.5 2.3 5.7 2.3
Jharkhand 1.5 −4.0 3.0 0.3 4.8 2.0 −5.5 2.0
Karnataka −8.1 7.3 7.2 2.9 −9.3 1.5 6.1 1.4
Kerala 1.5 4.9 6.9 5.3 1.5 1.0 3.8 1.0
Madhya Pradesh −5.6 0.0 2.5 −0.5 −7.3 2.0 −2.0 2.0
Maharashtra 1.6 −0.8 5.2 2.9 1.7 1.8 −2.4 1.7
Odisha 0.0 −3.4 5.2 1.8 −2.8 1.2 −1.7 1.2
Punjab 0.4 1.7 5.5 2.8 0.3 1.7 0.1 1.6
Rajasthan −3.6 1.3 2.5 0.4 −5.3 2.4 −0.6 2.4
Tamil Nadu −5.7 0.3 4.5 1.6 −7.2 1.0 −0.5 0.9
Uttar Pradesh 1.0 2.2 4.1 2.6 0.7 2.2 0.1 2.2
West Bengal 2.8 6.8 6.0 5.2 2.7 1.3 5.4 1.3
GCS 0.1 2.0 5.4 3.2 −0.7 1.8 0.5 1.7
Arunachal Pradesh 0.6 19.3 5.6 6.7 2.9 1.6 15.0 1.6
Assam − 0.4 12.2 4.9 3.9 −0.6 1.6 6.9 1.6
Himachal Pradesh 8.5 5.8 3.2 5.4 9.8 1.7 4.0 1.7
Jammu & Kashmir 2.9 2.2 4.2 3.3 3.0 2.1 0.0 2.0
Manipur 1.6 2.7 −1.0 0.6 1.8 2.1 0.6 2.1
Meghalaya 5.2 7.8 5.0 5.4 4.7 2.0 5.1 2.0
Mizoram −1.1 11.9 8.6 7.1 −1.6 2.6 8.5 2.6
Nagaland 17.2 15.5 8.4 12.0 19.4 7.4 8.2 7.4
Sikkim 6.5 17.3 4.3 7.5 6.9 2.8 14.5 2.7
Tripura 4.6 23.1 7.5 9.2 4.7 0.8 21.0 0.8
Uttarakhand 0.7 20.3 8.2 8.6 1.3 1.8 17.4 1.8
SCS 2.3 9.5 5.3 5.3 2.8 1.9 6.6 1.8
Andaman & 0.9 13.1 3.5 3.8 6.7 2.1 10.5 2.1
Nicobar Islands
Chandigarh 0.4 9.5 10.9 10.5 0.3 3.2 6.3 3.2
Delhi −0.4 6.0 4.9 5.0 −0.1 3.5 2.6 3.4
Pondicherry −2.3 15.0 5.9 9.6 −3.6 1.9 13.1 1.9
UTs −0.4 7.6 5.3 5.6 0.6 3.3 4.4 3.3
All States 0.2 2.5 5.4 3.4 −0.5 1.8 0.9 1.8
State GPRIMARY GSECONDARY GTERTIARY GSDP GAGRI GMNFG GPINDUSTRY GPOP GPSDP
Andhra Pradesh 8.0 11.8 10.7 10.2 7.1 1.1 11.7 1.1 9.1
Bihar 5.6 15.4 7.5 8.0 6.6 1.7 13.7 1.7 6.4
Chhattisgarh 5.3 13.9 8.7 9.0 4.2 2.0 10.5 2.0 7.0
Goa 8.1 7.0 9.4 8.2 1.0 3.2 5.2 3.1 5.1
Gujarat 5.4 12.6 11.8 10.8 7.5 1.6 10.1 1.5 9.3
Haryana 4.3 8.6 12.5 9.4 4.1 1.8 6.8 1.8 7.5
Jharkhand 5.2 3.3 10.8 6.4 8.6 1.6 1.3 1.6 4.9
Karnataka 9.1 10.6 10.9 10.5 9.7 1.2 9.5 1.2 9.3
Kerala 0.4 9.9 11.1 9.1 0.2 0.9 8.9 0.9 8.2
Madhya Pradesh 2.3 9.3 6.5 5.8 1.8 1.8 7.1 1.8 4.0
Maharashtra 7.8 14.4 11.6 11.9 9.9 1.6 12.6 1.5 10.3
Odisha 5.4 16.6 10.4 10.2 3.3 1.3 14.4 1.3 9.0
Punjab 2.3 14.8 6.9 7.5 2.3 1.9 12.9 1.8 5.7
Rajasthan 0.8 9.2 7.8 6.0 −0.3 1.9 7.6 1.9 4.1
Tamil Nadu 9.7 11.5 12.9 12.1 11.2 0.9 10.4 0.8 11.3
Uttar Pradesh 2.0 12.1 7.4 6.8 1.9 1.9 9.9 1.9 4.9
West Bengal 2.8 7.3 9.0 7.1 2.2 1.1 5.9 1.1 6.0
GCS 4.7 11.6 10.2 9.3 4.7 1.5 9.8 1.5 7.8
Arunachal Pradesh 4.2 12.3 7.0 7.8 7.4 3.0 9.5 3.0 4.9
Assam 1.8 −1.1 7.6 4.1 1.4 1.4 −1.2 1.4 2.7
Himachal Pradesh 3.7 9.6 10.3 8.4 2.2 1.2 8.3 1.2 7.2
Jammu & Kashmir 0.9 8.4 7.4 5.8 1.2 1.5 7.1 1.5 4.3
Manipur 3.7 6.3 6.2 5.5 4.3 2.0 4.3 2.0 3.5
Meghalaya 3.3 12.9 7.2 6.9 3.9 1.3 8.6 1.2 5.7
Mizoram 4.2 9.8 6.3 6.4 7.0 2.6 7.3 2.6 3.9
Nagaland 3.0 11.5 9.5 7.6 2.5 2.7 8.8 2.7 5.0
Sikkim 3.1 9.7 8.3 7.7 3.5 1.3 8.4 1.2 6.5
Tripura 7.1 7.8 7.1 7.3 7.5 1.3 6.3 1.2 6.1
Uttarakhand 2.1 24.3 14.1 14.4 1.8 1.6 21.8 1.6 12.8
SCS 2.5 9.5 9.0 7.2 2.3 1.5 7.3 1.5 5.7
Andaman & −2.4 28.4 4.3 9.4 −5.2 3.5 25.0 3.5 5.9
Nicobar Islands
Chandigarh 0.8 16.8 9.5 10.8 0.7 5.2 11.5 5.2 5.6
Delhi −1.4 8.7 11.8 11.2 −1.0 1.4 7.3 1.4 9.8
Pondicherry 0.1 3.6 12.2 7.3 8.7 1.9 1.7 1.9 5.4
UTs −1.3 8.8 11.6 10.9 −0.2 1.7 7.1 1.7 9.2
All States 4.5 11.4 10.2 9.3 4.5 1.6 9.6 1.5 7.8
State GPRIMARY GSECONDARY GTERTIARY GSDP GAGRI GMNFG GPINDUSTRY GPOP GPSDP
Andhra Pradesh 3.6 7.8 9.5 7.7 2.3 1.0 6.7 0.9 6.8
Bihar 5.5 16.4 14.2 12.4 6.3 1.4 14.9 1.4 11.0
Chhattisgarh 9.5 5.0 11.2 8.5 14.1 1.9 3.2 1.9 6.6
Goa 4.3 8.0 11.8 9.5 3.9 3.4 4.3 3.4 6.1
Gujarat 6.4 11.0 9.4 9.6 8.2 1.4 9.2 1.4 8.2
Haryana 3.0 7.9 12.4 9.3 3.3 1.7 6.0 1.7 7.6
Jharkhand 3.5 6.3 14.6 9.1 1.4 1.4 4.8 1.4 7.7
Karnataka 4.5 4.3 8.0 6.4 4.7 1.1 2.8 1.1 5.3
Kerala 0.5 6.7 10.7 8.6 −1.1 0.8 6.2 0.7 7.9
Madhya Pradesh 7.0 8.9 11.5 9.6 8.9 1.6 6.0 1.6 7.9
Maharashtra 4.3 10.1 10.3 9.7 5.3 1.5 8.5 1.4 8.3
Odisha 2.6 7.7 10.1 7.5 3.9 1.3 5.0 1.3 6.2
Punjab 1.0 7.8 8.1 6.2 0.9 1.9 6.0 1.8 4.4
Rajasthan 9.6 5.4 7.8 7.5 −43.4 1.7 3.7 1.7 5.8
Tamil Nadu 5.7 11.7 8.6 9.2 5.9 0.7 10.9 0.7 8.5
Uttar Pradesh 2.8 6.3 9.0 6.8 3.1 1.8 4.0 1.8 5.0
West Bengal 2.4 7.2 8.8 7.2 3.3 0.9 5.8 0.9 6.3
GCS 4.4 8.5 9.8 8.4 2.7 1.4 6.8 1.4 7.1
Assam 5.6 5.6 9.6 7.8 6.7 1.3 3.6 1.3 6.5
Himachal Pradesh 0.3 6.9 13.2 8.1 −0.8 1.3 5.7 1.3 6.9
Jammu & Kashmir 1.2 3.7 8.8 5.7 1.5 1.4 2.4 1.3 4.4
Manipur 7.2 4.1 8.2 6.5 8.7 1.9 2.2 1.9 4.7
Meghalaya 3.0 8.5 9.2 7.5 2.4 1.2 6.4 1.2 6.3
Mizoram 5.8 11.0 11.1 9.9 9.1 2.6 7.7 2.6 7.4
Nagaland 7.4 7.0 7.4 7.3 8.0 1.7 5.4 1.6 5.7
Sikkim 3.8 41.6 14.4 24.4 4.0 1.2 40.3 1.2 23.2
Tripura 2.5 11.9 10.2 8.7 0.9 1.2 10.7 1.2 7.5
Uttarakhand 4.6 14.7 12.0 12.0 5.5 1.5 12.9 1.5 10.5
SCS 4.0 9.3 10.4 8.6 4.5 1.4 7.4 1.4 7.3
Andaman & 2.1 3.7 12.3 8.9 1.2 3.3 0.1 3.2 5.6
Nicobar Islands
Chandigarh −7.4 15.8 7.2 8.3 −8.5 5.8 10.0 5.8 2.5
Delhi 11.8 8.4 11.3 10.9 12.5 2.0 6.5 1.9 9.0
Pondicherry 3.6 10.3 8.1 8.9 3.7 3.8 6.5 3.7 5.1
UTs 7.5 9.0 10.9 10.6 8.3 2.4 6.6 2.3 8.2
All States 4.4 8.6 9.9 8.6 2.9 1.4 6.8 1.4 7.2
State GAGRI GPRIMARY GMNFG GINDUSTRY GSECONDARY GTERTIARY GSDP GPOP GPSDP
Andhra Pradesh 4.9 5.3 1.1 9.3 9.3 9.2 8.2 1.1 7.1
Bihar 3.7 3.4 1.7 11.5 11.7 8.2 7.3 1.7 5.6
Chhattisgarh 5.0 5.8 1.9 10.0 10.8 8.4 8.2 1.9 6.2
Goa 0.4 6.3 3.3 7.6 6.9 8.9 7.8 3.2 4.5
Gujarat 7.6 6.0 1.6 10.0 10.6 10.1 9.6 1.6 8.0
Haryana 3.5 3.5 1.8 8.3 8.3 12.1 8.9 1.8 7.1
Jharkhand 5.6 4.8 1.6 3.3 3.3 9.8 6.0 1.6 4.5
Karnataka 2.6 2.8 1.3 7.7 7.6 9.1 7.3 1.2 6.1
Kerala 0.3 0.7 0.9 7.8 7.8 9.7 7.8 0.9 6.9
Maharashtra 4.3 3.7 1.6 8.9 9.0 9.4 8.6 1.5 7.1
Madhya Pradesh 4.7 4.4 1.8 7.4 7.8 6.7 6.3 1.8 4.4
Odisha 3.9 5.1 1.3 10.6 10.5 9.6 8.4 1.3 7.2
Punjab 1.9 2.0 1.9 9.2 9.2 7.0 6.1 1.8 4.3
Rajasthan −2.3 5.3 2.0 7.1 7.0 7.5 6.8 1.9 4.9
Tamil Nadu 3.0 2.9 0.9 7.9 8.0 9.4 8.1 0.8 7.4
Uttar Pradesh 2.0 2.1 1.9 7.6 7.8 7.4 5.9 1.9 4.0
West Bengal 2.1 2.4 1.1 6.5 6.8 8.2 6.5 1.1 5.3
GCS 3.3 3.7 1.5 8.3 8.5 8.9 7.6 1.5 6.1
Assam 2.0 1.6 1.4 4.7 6.4 7.3 5.2 1.4 3.8
Himachal Pradesh 3.1 3.8 1.4 8.2 8.2 9.2 7.6 1.4 6.3
Jammu & Kashmir 2.7 2.3 1.5 5.4 5.4 7.0 5.3 1.5 3.8
Manipur 6.8 5.8 2.0 7.0 7.0 5.1 5.6 2.0 3.6
Meghalaya 3.6 3.4 1.3 9.6 12.1 7.4 7.1 1.3 5.8
Mizoram 6.8 4.5 2.6 10.1 10.1 8.0 7.7 2.6 5.1
Nagaland 6.6 6.5 3.8 10.7 10.6 7.5 7.6 3.7 3.9
Sikkim 4.9 4.5 1.5 21.2 21.3 9.0 12.8 1.4 11.4
Tripura 5.2 5.7 1.2 10.4 10.6 8.0 7.9 1.2 6.7
Uttarakhand 2.3 2.6 1.6 18.6 19.0 12.7 12.4 1.6 10.8
SCS 3.0 2.8 1.6 9.1 9.9 8.5 7.3 1.5 5.7
Andaman & −1.2 −0.7 3.3 18.2 18.6 9.3 9.1 3.3 5.8
Nicobar Islands
Chandigarh −0.2 0.2 4.9 10.2 10.2 9.8 9.9 4.9 5.0
Delhi 2.2 1.9 2.0 7.6 7.6 10.2 9.7 1.9 7.8
Pondicherry 5.9 4.1 2.1 6.1 6.1 8.7 7.2 2.1 5.1
UTs 2.2 1.8 2.2 7.7 7.7 10.1 9.6 2.2 7.4
All States 3.3 3.6 1.6 8.4 8.6 9.0 7.7 1.5 6.2
Annex 3.6 Sectoral shares 2000–3
State AGRICUL AGRIALLIED PRIMARY SECON TERTIARY MANUFTRNG INDUST
Andhra Pradesh 22.3 27.3 30.0 20.7 49.3 12.1 23.5

Bihar 29.1 34.2 34.4 12.9 52.6 6.4 13.2
Chhattisgarh 17.9 25.6 35.6 27.9 36.5 15.6 39.0
Goa 6.3 8.9 12.9 42.0 45.0 29.1 45.9
Gujarat 12.7 16.0 19.9 35.8 44.3 27.1 39.7
Haryana 26.1 27.6 27.9 31.2 40.9 21.8 31.5
Jharkhand 13.2 17.1 29.8 37.2 33.0 30.0 50.5
Karnataka 20.5 24.1 24.9 27.9 47.1 16.7 28.7
Kerala 16.9 21.0 21.4 20.4 58.2 9.7 20.8
Madhya Pradesh 23.9 27.3 31.8 22.7 45.5 12.2 27.2
Maharashtra 9.6 12.6 13.5 29.5 57.0 20.6 30.3
Odisha 21.3 27.1 33.4 24.1 42.5 9.2 29.9
Punjab 33.5 35.1 35.1 23.8 41.1 15.5 23.8
Rajasthan 21.0 24.7 26.8 28.0 45.2 13.6 30.1
Tamil Nadu 11.9 14.0 14.7 30.4 54.9 20.0 31.0
Uttar Pradesh 30.1 33.2 34.2 19.9 45.9 13.4 20.9
West Bengal 22.0 27.0 28.4 18.4 53.2 10.6 19.8
GCS 19.6 23.1 25.2 25.7 49.1 16.3 27.7
Arunachal Pradesh 20.0 44.8 47.9 16.8 35.3 2.6 18.9
Assam 25.6 30.1 40.1 14.5 45.4 8.0 23.3
Himachal Pradesh 19.4 25.7 26.0 38.6 35.4 11.8 38.9
Jammu & Kashmir 22.3 28.5 28.6 26.8 44.6 4.8 26.9
Manipur 18.4 24.8 24.8 30.0 45.2 4.8 30.0
Meghalaya 17.6 24.5 33.6 15.2 51.2 1.9 24.4
Mizoram 15.7 27.0 27.1 16.1 56.8 1.5 16.3
Nagaland 24.1 31.4 31.5 12.3 56.2 1.8 12.4
Sikkim 16.9 19.4 19.5 25.2 55.2 4.2 25.4
Tripura 23.2 28.1 29.7 19.8 50.5 5.1 21.3
Uttarakhand 20.1 27.1 27.9 21.2 50.8 10.9 22.1
SCS 22.3 28.5 32.6 22.0 45.5 7.4 25.6
Andaman & 17.7 25.6 26.4 11.9 61.7 1.6 12.5
Nicobar Islands
Chandigarh 1.1 1.2 1.2 14.5 84.3 7.5 14.5
Delhi 1.3 1.4 1.4 17.5 81.1 8.3 17.5
Pondicherry 3.8 6.2 6.2 52.5 41.3 37.6 52.5
UTs 1.7 2.1 2.1 19.3 78.7 9.9 19.3
All States 19.0 22.6 24.7 25.2 50.1 15.6 27.3
Andhra Pradesh 19.9 24.2 27.4 21.5 51.1 12.1 24.7

Bihar 25.7 30.3 30.4 14.7 54.9 5.5 14.8
Chhattisgarh 16.3 22.5 33.3 32.5 34.2 20.5 43.5
Goa 5.1 7.8 12.9 41.9 45.2 29.5 46.9
Gujarat 13.9 16.7 19.8 36.7 43.5 27.6 39.8
Haryana 20.7 21.8 22.1 32.0 45.9 21.0 32.3
Jharkhand 12.1 15.9 26.5 37.9 35.5 29.7 48.6
Karnataka 14.7 17.3 18.4 29.7 51.8 18.5 30.8
Kerala 13.0 16.0 16.4 22.1 61.5 8.4 22.5
Madhya Pradesh 24.3 27.3 32.1 22.9 45.0 11.9 27.6
Maharashtra 8.6 11.0 11.7 30.1 58.2 22.1 30.8
Odisha 18.0 22.6 30.3 26.5 43.2 12.5 34.2
Punjab 29.3 30.8 30.8 26.7 42.5 16.6 26.7
Rajasthan 21.4 24.9 27.3 28.6 44.1 13.0 31.0
Tamil Nadu 9.1 10.7 11.3 30.7 58.0 20.1 31.3
Uttar Pradesh 25.9 28.6 29.7 22.8 47.5 14.0 23.9
West Bengal 18.4 23.1 24.3 19.9 55.7 10.8 21.2
GCS 16.8 19.8 21.9 27.2 50.9 17.1 29.3
Assam 21.4 25.3 33.9 17.1 48.9 9.5 25.7
Jammu & Kashmir 21.3 26.7 26.8 27.9 45.3 6.3 28.0
Manipur 18.1 23.9 23.9 36.4 39.7 4.7 36.4
Meghalaya 16.1 22.1 31.3 17.8 50.9 4.6 27.0
Mizoram 13.4 22.5 22.8 18.3 58.8 1.5 18.7
Nagaland 24.9 31.8 31.9 13.7 54.3 1.9 13.9
Sikkim 15.6 17.6 17.7 29.1 53.2 3.8 29.2
Tripura 20.9 25.3 26.7 23.7 49.6 3.4 25.1
Uttarakhand 14.4 19.4 20.7 29.4 49.9 16.4 30.6
SCS 19.3 24.6 28.1 25.4 46.5 9.2 28.9
Andaman & 11.2 15.1 15.7 30.5 53.8 1.2 31.0
Nicobar Islands
Chandigarh 0.8 0.8 0.8 17.5 81.7 6.1 17.5
Delhi 0.9 1.0 1.0 17.2 81.8 7.1 17.2
Pondicherry 3.3 4.5 4.5 51.6 43.8 37.9 51.6
UTs 1.2 1.4 1.4 19.3 79.3 8.6 19.3
All States 16.3 19.3 21.4 26.8 51.8 16.3 28.9
State AGRICUL AGRIALLIED PRIMARY SECONDARY TERTIARY MANUFTRNG INDUST

Andhra Pradesh 17.1 20.8 23.6 22.8 53.6 12.4 25.6
Bihar 20.9 24.0 24.1 18.8 57.2 5.4 18.9
Chhattisgarh 13.3 18.2 28.7 34.8 36.6 19.0 45.2
Goa 3.3 5.1 11.5 38.5 49.9 27.3 45.0
Gujarat 10.8 12.7 14.7 39.2 46.1 27.6 41.2
Haryana 16.5 17.4 17.5 29.6 52.9 19.2 29.7
Jharkhand 12.4 15.9 26.5 29.1 44.4 20.1 39.7
Karnataka 13.5 15.8 16.7 28.6 54.7 18.2 29.5
Kerala 8.8 11.2 11.6 20.4 67.9 8.3 20.9
Maharashtra 6.5 8.2 8.7 30.3 61.0 20.8 30.8
Madhya Pradesh 21.3 23.5 27.6 25.9 46.4 13.3 30.0
Orissa 14.5 17.8 25.1 28.4 46.5 15.8 35.7
Punjab 23.4 24.6 24.7 30.9 44.5 20.2 30.9
Rajasthan 14.4 21.5 23.9 28.3 47.8 14.0 30.7
Tamil Nadu 7.4 8.6 9.1 29.9 61.0 20.6 30.4
Uttar Pradesh 21.4 23.7 24.5 23.3 52.2 13.6 24.2
West Bengal 15.0 19.0 19.8 18.9 61.2 11.0 19.8
GCS 13.5 16.1 17.8 27.7 54.5 17.0 29.4
Assam 19.2 22.9 29.0 16.6 54.5 6.8 22.6
Jammu And Kashmir 17.9 21.9 22.1 26.6 51.3 7.9 26.9
Manipur 20.1 24.6 24.6 33.4 42.0 5.0 33.4
Meghalaya 12.9 17.4 24.2 23.3 52.5 6.9 30.1
Mizoram 14.9 20.8 21.1 19.9 59.1 1.3 20.1
Nagaland 21.9 28.3 28.5 16.0 55.5 2.3 16.2
Sikkim 8.9 9.8 9.9 49.7 40.4 21.2 49.8
Tripura 18.6 23.5 24.9 24.2 50.9 2.7 25.7
Uttarakhand 8.5 11.6 12.2 35.0 52.8 25.0 35.6
SCS 15.4 19.7 22.0 27.6 50.4 11.6 29.9
Andhra Pradesh 19.8 24.1 27.0 21.7 51.3 12.1 24.6

Bihar 25.3 29.6 29.7 15.4 54.9 5.7 15.6
Chhattisgarh 15.9 22.1 32.6 31.8 35.7 18.5 42.7
Goa 4.9 7.3 12.5 40.9 46.6 28.7 46.0
Gujarat 12.6 15.2 18.3 37.2 44.5 27.4 40.2
Haryana 21.1 22.2 22.5 31.0 46.5 20.7 31.3
Jharkhand 12.5 16.3 27.5 35.0 37.5 26.8 46.4
Karnataka 16.1 19.0 19.9 28.8 51.3 17.8 29.7
Kerala 12.9 16.1 16.5 21.1 62.5 8.8 21.5
Maharashtra 8.3 10.6 11.4 29.9 58.7 21.3 30.7
Madhya Pradesh 23.2 26.2 30.6 23.8 45.6 12.4 28.2
Odisha 18.0 22.5 29.6 26.4 44.0 12.5 33.4
Punjab 28.8 30.2 30.3 27.1 42.7 17.4 27.1
Rajasthan 19.1 23.8 26.1 28.3 45.6 13.5 30.6
Tamil Nadu 9.5 11.1 11.7 30.3 58.0 20.2 30.9
Uttar Pradesh 25.8 28.5 29.5 22.1 48.4 13.7 23.1
West Bengal 18.5 23.0 24.2 19.2 56.6 10.8 20.3
GCS 16.6 19.7 21.7 26.9 51.5 16.9 28.9
Assam 22.0 26.0 34.3 16.2 49.5 8.2 24.0
Jammu & Kashmir 20.6 25.8 25.9 27.2 46.9 6.3 27.3
Manipur 18.8 24.4 24.4 33.5 42.1 4.9 33.5
Meghalaya 15.6 21.4 29.8 18.7 51.5 4.5 27.1
Mizoram 14.6 23.4 23.6 18.1 58.3 1.4 18.4
Nagaland 23.7 30.6 30.7 14.0 55.3 2.0 14.1
Sikkim 13.9 15.8 15.9 34.3 49.9 9.3 34.4
Tripura 20.9 25.6 27.1 22.7 50.3 3.7 24.1
Uttarakhand 14.4 19.4 20.3 28.6 51.1 17.4 29.5
SCS 19.0 24.3 27.6 25.0 47.4 9.4 28.2
Andaman & 11.9 16.9 17.5 23.2 59.3 1.2 23.7
Nicobar Islands
Chandigarh 0.8 0.9 0.9 15.6 83.6 6.6 15.6
Delhi 1.0 1.0 1.0 16.5 82.5 7.0 16.5
Pondicherry 3.5 5.2 5.2 50.7 44.1 37.2 50.7
UTs 1.2 1.5 1.5 18.3 80.2 8.5 18.4
All States 16.1 19.2 21.1 26.4 52.5 16.1 28.4
Annex 3.10 Share of states in combined SDP and population
Share in Combined SDP Share in Combined Population
State 2000–3 2004–8 2009–12 2000–3 2004–8 2009–12
Andhra Pradesh 7.9 8.1 8.2 7.4 7.3 7.1

Bihar 2.9 2.6 2.8 8.1 8.2 8.2
Chhattisgarh 1.6 1.7 1.7 2.0 2.1 2.1
Goa 0.4 0.4 0.5 0.1 0.1 0.1
Gujarat 6.6 7.4 7.8 4.9 4.9 4.9
Haryana 3.2 3.4 3.5 2.1 2.1 2.1
Jharkhand 2.1 1.9 1.8 2.6 2.6 2.6
Karnataka 6.1 6.0 5.9 5.1 5.1 5.0
Kerala 4.1 4.2 4.1 3.1 3.0 2.9
Madhya Pradesh 4.4 3.9 3.9 5.9 6.0 6.0
Maharashtra 14.6 15.3 15.7 9.4 9.4 9.4
Odisha 2.6 2.7 2.8 3.6 3.5 3.5
Punjab 3.7 3.4 3.2 2.4 2.4 2.4
Rajasthan 4.6 4.6 4.3 5.5 5.6 5.7
Tamil Nadu 8.0 8.0 8.2 6.1 5.9 5.7
Uttar Pradesh 9.9 9.1 8.5 16.2 16.5 16.8
West Bengal 7.5 7.2 6.7 7.8 7.7 7.5
GCS 90.2 90.2 89.7 92.34 92.28 92.25
Arunachal Pradesh 0.1 0.1 0.1 0.1 0.1 0.1
Assam 2.0 1.8 1.6 2.6 2.6 2.6
Himachal Pradesh 0.8 0.8 0.8 0.6 0.6 0.6
Jammu & Kashmir 1.0 0.9 0.8 1.0 1.0 1.0
Manipur 0.2 0.2 0.2 0.2 0.2 0.2
Meghalaya 0.2 0.2 0.2 0.2 0.2 0.2
Mizoram 0.1 0.1 0.1 0.1 0.1 0.1
Nagaland 0.2 0.2 0.2 0.1 0.2 0.2
Sikkim 0.1 0.1 0.1 0.1 0.1 0.1
Tripura 0.3 0.3 0.3 0.3 0.3 0.3
Uttarakhand 0.8 0.9 1.2 0.8 0.8 0.8
SCS 5.8 5.7 5.6 6.13 6.15 6.13
Andaman & 0.1 0.1 0.1 0.0 0.0 0.0
Nicobar Islands
Chandigarh 0.3 0.3 0.3 0.1 0.1 0.1
Delhi 3.4 3.6 4.1 1.3 1.4 1.4
Pondicherry 0.24 0.23 0.22 0.1 0.1 0.1
UTs 4.0 4.2 4.7 1.57 1.61 1.65
All States 100.0 100.0 100.0 100.0 100.0 100.0
Annex 3.11 Contribution to growth in combined output and population
Contribution Contribution Contribution Contribution Contribution Contribution

to combined to combined to combined to combined to combined to combined
growth in growth in growth in growth in growth in growth in
output output output population population population
State 2000–3 2004–8 2009–12 2000–3 2004–8 2009–12
Andhra Pradesh 11.4 8.8 7.4 4.0 5.2 4.8

Bihar 5.1 2.3 4.0 11.3 9.0 8.3
Chhattisgarh 1.6 1.7 1.7 1.6 2.7 2.9
Goa 0.4 0.4 0.5 0.2 0.3 0.4
Gujarat 8.0 8.6 8.7 5.7 5.1 5.0
Haryana 7.0 3.4 3.9 2.6 2.5 2.6
Jharkhand 0.2 1.3 1.9 2.9 2.7 2.6
Karnataka 5.2 6.8 4.4 4.2 4.0 3.8
Kerala 6.4 4.1 4.2 1.7 1.8 1.5
Madhya Pradesh −0.7 2.5 4.4 6.7 7.2 7.1
Maharashtra 12.7 19.7 17.9 9.3 9.6 9.7
Odisha 1.3 3.0 2.4 2.5 3.0 3.3
Punjab 3.0 2.8 2.3 2.2 2.9 3.2
Rajasthan 0.6 2.9 3.8 7.3 6.9 6.9
Tamil Nadu 3.8 10.5 8.8 3.2 3.1 2.7
Uttar Pradesh 7.7 6.7 6.8 19.9 20.9 21.6
West Bengal 11.4 5.5 5.7 5.6 5.6 5.1
GCS 84.42 90.69 88.58 90.79 92.21 91.31
Arunachal Pradesh 0.2 0.1 0.1 0.1 0.2 0.2
Assam 2.3 0.8 1.5 2.4 2.4 2.3
Himachal Pradesh 1.4 0.8 0.8 0.6 0.5 0.5
Jammu & Kashmir 1.0 0.6 0.6 1.1 1.0 0.9
Manipur 0.03 0.10 0.12 0.3 0.3 0.3
Meghalaya 0.4 0.2 0.2 0.2 0.2 0.2
Mizoram 0.2 0.1 0.1 0.1 0.2 0.2
Nagaland 0.7 0.2 0.2 0.6 0.3 0.2
Sikkim 0.1 0.1 0.3 0.1 0.0 0.0
Tripura 0.8 0.2 0.3 0.1 0.3 0.3
Uttarakhand 2.0 1.4 1.6 0.8 0.9 0.9
SCS 9.07 4.46 5.69 6.37 6.10 6.01
Andaman & 0.1 0.1 0.1 0.0 0.1 0.1
Nicobar Islands
Chandigarh 0.8 0.4 0.3 0.2 0.3 0.5
Delhi 5.1 4.3 5.2 2.6 1.2 1.9
Pondicherry 0.7 0.2 0.2 0.1 0.1 0.3
UTs 6.64 4.93 5.79 2.89 1.78 2.78
All States 100.0 100.0 100.0 100.0 100.0 100.0
Annex 3.12 Variability in sectoral output
2000–3 2004–8 2009–12 2000–3 2004–8 2009–12 2000–3 2004–8 2009–12 2000–3 2004–8
State CVPRI CVPRI CVPRI CVSEC CVSEC CVSEC CVTER CVTER CVTER CVSDP CVSDP
Andhra Pradesh 5.7 13.0 5.2 6.0 17.8 9.8 9.0 16.2 11.9 6.3 15.6
Bihar 14.8 10.7 9.9 4.5 23.2 20.0 8.0 11.9 17.6 8.8 12.7
Chhattisgarh 9.9 9.4 12.0 8.4 22.8 8.2 5.9 13.6 14.1 6.0 14.7
Goa 7.9 12.8 6.6 7.9 10.9 10.2 4.7 14.4 14.8 4.7 12.7
Gujarat 10.2 9.7 8.6 7.0 18.7 13.5 8.0 17.7 11.7 6.7 16.4
Haryana 1.7 7.5 4.5 10.3 13.1 10.0 14.6 19.0 15.1 9.3 14.4
Jharkhand 6.6 8.2 5.0 19.6 15.6 8.0 4.7 16.2 17.5 4.5 11.8
Karnataka 11.2 14.4 6.6 9.7 16.7 5.9 9.0 16.7 10.7 3.8 16.1
Kerala 2.0 3.9 0.6 6.4 14.8 8.4 8.8 16.9 13.1 6.8 13.7
Madhya Pradesh 13.8 4.1 9.4 0.7 14.7 11.2 3.2 10.3 14.2 3.4 9.2
Maharashtra 3.2 13.7 7.1 5.1 21.7 12.5 6.8 17.4 12.8 4.6 18.1
Odisha 6.0 8.4 3.8 5.4 25.1 10.2 6.7 15.7 12.6 2.9 15.7
Punjab 0.9 3.8 1.6 2.8 22.8 9.9 7.0 10.9 10.2 3.6 11.9
Rajasthan 15.0 6.7 13.1 2.9 14.3 6.8 3.7 12.4 9.8 5.0 10.0
Tamil Nadu 10.4 15.2 7.2 5.2 17.1 14.2 5.7 19.3 10.8 2.7 18.1
Uttar Pradesh 1.3 3.4 4.0 3.2 18.1 8.0 5.3 11.6 11.3 3.4 10.7
West Bengal 4.4 4.5 3.6 8.7 11.4 9.1 7.6 13.7 11.0 6.6 11.0
GCS 2.5 7.5 5.8 4.2 17.6 10.6 7.0 15.6 12.2 4.2 14.3
Arunachal 4.0 8.5 9.6 31.9 19.9 15.0 7.1 11.0 12.9 9.6 12.4
Pradesh
Assam 0.9 2.9 7.1 17.3 3.2 7.3 6.3 11.8 12.0 5.2 6.4
Himachal 10.8 6.2 6.6 7.5 14.9 8.7 4.2 15.5 16.4 6.9 12.9
Pradesh
Jammu & 4.0 1.5 1.8 3.3 12.9 4.8 5.9 11.6 11.1 4.4 9.0
Kashmir
Manipur 3.1 6.5 9.0 7.2 10.1 5.2 4.5 9.7 10.2 3.2 8.7
Meghalaya 7.0 5.2 3.9 10.1 19.2 10.8 6.3 11.0 11.5 6.9 10.7
Mizoram 4.0 7.7 7.6 15.1 16.0 13.8 10.9 10.0 13.8 9.2 10.3
Nagaland 20.7 5.1 9.6 19.3 18.0 8.9 10.5 14.9 9.5 14.8 11.9
Sikkim 8.2 4.9 4.8 20.4 14.7 40.1 5.8 12.7 17.2 9.5 11.8
Tripura 8.8 12.2 3.2 25.8 12.3 14.6 9.7 10.9 12.7 11.6 11.3
Uttarakhand 2.6 3.6 6.0 23.8 34.0 17.7 10.2 21.7 14.6 10.9 21.7
SCS 3.0 4.0 5.2 12.0 14.5 11.5 6.8 13.8 12.8 6.7 11.2
Pondicherry 3.5 4.6 4.6 17.9 11.6 13.0 7.7 19.0 10.3 11.9 13.0
Andaman & 3.1 16.3 2.8 19.5 38.9 5.0 4.8 7.0 15.2 5.7 15.3
Nicobar Islands
Chandigarh 2.7 1.4 11.5 13.5 25.6 19.2 13.5 14.7 9.0 13.2 16.6
Delhi 1.5 2.5 14.9 8.8 13.3 10.6 6.3 18.0 14.0 6.6 16.9
UTs 1.1 4.4 9.7 10.3 13.4 11.3 6.9 17.7 13.6 7.3 16.6
All States 2.3 7.2 5.7 4.5 17.2 10.7 6.9 15.7 12.3 4.4 14.3
Note: CVP – CVPRIMARY, CVSEC – CVSECONDARY, CVTER – CVTERTIARY.

Annex 3.13 Sectoral contribution to growth
Period State GCS SCS UTs All States
2000–3 Primary 5.92 0.50 −0.15 1.71

2000–3 Secondary 39.32 16.04 26.05 18.67
2000–3 Tertiary 54.76 83.46 74.10 79.61
2004–8 Primary −3.63 10.95 −0.16 10.35
2004–8 Secondary 81.91 33.68 15.69 32.74
2004–8 Tertiary 21.72 55.37 84.48 56.90
2009–12 Primary 2.48 9.26 0.75 8.83
2009–12 Secondary 10.46 27.90 13.86 27.19
2009–12 Tertiary 87.05 62.84 85.39 63.98
2000–12 Primary −1.18 10.33 0.28 9.82
2000–12 Secondary 44.40 29.90 14.76 29.30
2000–12 Tertiary 56.78 59.77 84.95 60.88
4
Income Inequality
Higher growth is desirable as it expands the scope of opportunities for

people at one end and on the other, serves as a necessary condition for
higher public spending to bridge the divide between the haves and have
nots. However, if benefits of growth are confined to few pockets in the
society or are shared by a narrow stretch in the vast geography it can create
dissension and pose a danger to the moral and social fabric of the country.
As promoting inclusive growth has been the guiding principle of the Indian
government’s policy initiatives, the benefits of growth need to be broad
based, not only for humanistic concerns but also for the necessary popular
support for sustenance of the growth process. The high growth witnessed
in the post-reform phase emphasises the role of markets in improving the
efficiency of the system. The critiques of a market-driven approach often
resort to anecdotal evidence to point out the inability of the poor to partic-
ipate effectively in the market process. Whether such criticisms hold water
can be ascertained by analysing the distributional dimensions of growth.
Poverty is an indicator of abject inequality. Poverty levels in India
were as high as 36 per cent in 1993–4, around the time reforms were
introduced. In view of the high incidence of poverty the efficacy of
economic growth in overcoming it will be a pointer to assess whether
the growth process has been inclusive in nature. Thus, one is interested
to know how India has fared in reducing poverty after introducing
economic reforms and, especially in the post-2000 period, which is the
focus of our study. Estimates of poverty, which are obtained through
quinquennial surveys, are indicative of consumption-based inequality.
In addition, one can discuss income inequality, for which information
on a higher (annual) frequency is available. It is very much possible that
poorer regions may be growing at a higher rate, nonetheless inequality
across regions might be rising. Further, answering the question as to
81
whether the relatively poorer states have been able to catch up with
their richer counterparts will provide additional perspectives on the
evolution of regional inequality during the post-reform period.
Against this backdrop, the present chapter studies, in some detail, growth’s
implications for inequality. The chapter is structured as follows: Section 4.1
discusses the consumption-based inequality and evolution in the post-2000
period. Inequality in terms of per capita income (PCI) and income mobility
through rank analysis is undertaken in Section 4.2. Section 4.3 looks at the
performance of some of the popular inequality measures such as the Gini
coefficient. The convergence performance of states is analysed in Section
4.4. Section 4.5 provides the concluding observations.
4.1 Consumption-based inequality
Estimation of poverty in the post-2000 period is marked with much

controversy. The controversies relate to the methodology for computing
poverty levels. While at one level there are alternate methodologies and,
at the other, the official methodology itself has not been consistent. If we
consider alternate methodologies, the World Bank estimated the poverty
figure at 40 per cent in 2005. The Arujun Sengupta report adopted the
World Bank measure of anchoring poverty to a dollar a day at PPP rates,
which amounts to Rs. 20, yielded a poverty level of 77 per cent in the final
report of the National Commission for Enterprises in the Unorganized
Sector (NCEUS) in 2009. The Saxena Committee appointed by the Ministry
of Rural Development argued for classifying at least 50 per cent of the
population as below the poverty line (BPL). The BPL figure of 50 per cent
is based on a calories norm of 2,100 kilo calories daily as well as minimum
cereal consumption of 12.5 kilograms per month. The committee recog-
nized that applying the 2,400 kilo calorie norm results in 80 per cent of
the population being classified as BPL. The committee chose, however,
to peg the BPL population in rural areas to 2,100 kilo calories, a level of
energy consumption considered to be the minimum for healthy living in
urban areas in 1973–4. The committee justified its recommendation by
arguing that the norm of healthy living in urban areas in 1973–4 would
now be relevant for rural areas in view of the general decline in hard
manual work. The myriad poverty estimates prompted a business daily
publication to comment:
All of this may seem a bit comical, but for the fact that the joke
is at the expense of the poor. For them, being officially entitled to
below-poverty-line (BPL) status can be a matter of life and death, as
Income Inequality 83
it promises access to a host of welfare schemes from cheap grains at

ration shops to subsidised housing under the Indira Awaas Yojana.
By 1999–2000, poverty levels in India had come down to 26 per cent,

a reduction of 1.66 per cent per annum between 1993–4 and 1999–2000.
However, the poverty estimates of 1993–94 were based on a uniform
recall period (URP) of 30-days, whereas the 1999–2000 estimates were
based on a mixed recall period (MRP). A 30-day recall period was used
in addition to the usual 7-day recall period under the MRP. Given the
methodological differences, estimation of poverty between 1993–4 and
1999–2000 were not comparable, as the use of MRP would have contami-
nated the survey responses and yielded a biased poverty estimate for
1999–2000. The methodological confusion created with the 55th round
of NSSO (1999–2000) were sought to be overcome in the 61st round of
NSSO surveys conducted during July 2004 to June 2005, which provided
poverty estimates based on both URP and MRP. The findings from the 61st
round of NSSO estimates gave two different estimates of poverty, one with
reference to 1993–4 in which the URP was used, and one with reference
to 1999–2000 in which MRP was used. The poverty estimate in 2004–5,
based on URP consumption distribution, turned out to be 27.5 per cent,
comparable to the poverty estimate of 1993–4, which was 36 per cent. The
poverty estimate in 2004–5, based on MRP consumption, was 21.8 per
cent, comparable with the poverty estimate of 1999–2000, which was 26.1
per cent. The rural poverty estimates in was 28.3 per cent, as per the URP,
and 21.75 as per the MRP in 2004–5. There were a number of reactions
to the poverty numbers estimated for 2004–5. First, some criticized the
poverty estimates, especially for the rural areas, as being too low and need
to be revised upwards. Second, criticism was leveled against the method
of determining the poverty line. As per the extant methodology, which
is based on the 1993 Lakadwala Committee report, the poverty line in
2004–5 was computed on the basis of per capita consumption expendi-
ture, which was mapped to a commodity bundle that yielded a specified
level of calories in 1973–4. The original link with calories, however, was
broken over time, as consumption patterns had changed since 1973–4.
The result was that some argued that the poverty lines should be redrawn
to return to a calorie-based estimate. Also, there was the issue of raising the
poverty threshold in view of rising income observed in the post-reform
period. In light of the criticisms and alternate opinions, in 2005 the
Planning Commission appointed a committee (under the chairmanship
of Suresh D. Tendulkar) to review alternate concepts of poverty and recom-
mend changes in the existing procedures of official estimations of poverty.
The Tendulkar Committee submitted its report in 2009. In its report the
committee did not recommend a new basis for defining poverty in terms
of calories, or any other minimum basic needs, but instead it maintained
that magnitude of the estimates of all-India urban poverty that emerged
from the traditional methodology were broadly acceptable. The Tendulkar
Committee decided to locate the poverty-line bundle of goods and services
in the consumption pattern observed in the 2004–5 NSSO survey based on
the mixed reference period, and it recommended that the same bundle be
made available to the rural population after correcting for the rural–urban
price differential. The committee observed that there is less controversy
with respect to the urban poverty numbers, and that they can be taken
as benchmarks, and it recommended that the rural poverty line should
be recomputed to reflect money value in rural areas of the same basket of
consumption that is associated with the existing urban poverty ratio. The
Tendulkar Committee used implicit prices derived from quantity and value
data collected in household consumer expenditure surveys for computing
the poverty lines. The committee, using its recommended methodology,
recomputed the rural and urban poverty ratios for 1993–4 and 2004–5.
A comparison of the Tendulkar and Lakadwala committees estimates of
poverty suggests that even though the Tendulkar methodology gives a
higher estimate of rural poverty ratio at the all-India level for 2004–5, the
extent of poverty reduction between 1993–4 and 2004–5 is not different
from that inferred using the Lakadwala methodology. Specifically, using
the Tendulkar methodology, all-India poverty ratios declined from 45.3
per cent in 1993–4 to 37.2 per cent in 2004–5 compared to 36 per cent
and 27.5 per cent as per the Lakadwala methodology. The estimates of
rural poverty were 50.1 per cent and 40.8 per cent, respectively, between
1993–4 and 2004–5 as per the Tendulkar methodology. The Tendulkar
committee, however, did not rely on calorie-based norms; it has quanti-
fied the calorie implications of the new poverty line proposed by it. The
committee observed that, although those near the poverty line in urban
areas can afford the original calorie norm of 2,100 per capita per day, their
actual observed calorie intake observed during 2004–5 was 1,776 calories
per capita. More importantly, the actual calorie intake is very close to the
revised norm of 1,770 per capita per day that is currently recommended
for India by the Food and Agriculture Organisation (FAO). Actual observed
per capita calorie intake of those near the new poverty line in rural areas
was 1999, higher than the FAO norm.
Application of the Tendulkar methodology to the NSSO consumption
expenditure data for 2009–10 indicates that the all-India poverty ratio has
declined by 7.3 percentage points from 37.2 per cent in 2004–5 to 29.8
per cent in 2009–10, with rural poverty declining by 8.0 percentage points
from 41.8 per cent to 33.8 per cent and urban poverty declining by 4.8
percentage points from 25.7 per cent to 20.9 per cent. The monthly per
capita consumption expenditure, which defined the poverty line, turned
out to be Rs. 3,364 in rural areas and Rs. 4,298 in urban areas for a family of
five in 2009–10 compared to Rs. 2,234 and Rs. 2,894, respectively, for rural
and urban areas in 2004–5. Interpolation of expenditure figures that are
relevant only over a monthly period to a per day basis, which is conceptu-
ally wrong, however, drew much media attention and the public percep-
tion became entrenched that the consumption expenditure anchoring
the poverty numbers was too low. The debate over estimation of poverty
remains open ended, as in 2012 the Planning Commission appointed a
new technical group under the chairmanship of C. Rangarajan to compre-
hensively review the existing methodology of estimation of poverty.
4.2 Behaviour of per capita income
Given the multitude of estimates and controversies surrounding the

official poverty estimates, it would be better to base the discussion on
inequality on some more widely accepted and less controversial indi-
cator of well-being. Per capita income (PCI) is one such indicator. The
difference in the highest and the lowest per capita income and how the
PCI differential has evolved over time gives a broad idea as to whether
growth has become more or less equalized. We will base our discussion
separately for the general category states and the special category States.
GCS: Bihar and Goa had the lowest and highest PCI, respectively,
during the years between 2000 and 2012. However, the PCI of Goa,
which was 11 times that of Bihar in 2000, was reduced to 8 times in
2012. For the GCS the average PCI has increased 1.9 times between 2000
and 2012. Only Bihar, Odisha, Andhra Pradesh, Kerala, Tamil Nadu,
Gujarat, Haryana and Maharashtra had an increase in PCI by a higher
multiple between 2000 and 2012. Gujarat had the increase in PCI by
the highest multiple of 2.23 between 2000 and 2012. The increase in
PCI was by a higher multiple between 2004–8, the high-growth phase
compared to the low-growth phase of 2000–3. Only three states – Bihar,
Madhya Pradesh and Rajasthan – displayed an increase in PCI by a
higher multiple in the post-crisis period of 2009–12 compared to the
high-growth phase and for all other states, the increase was by a lower
multiple. While eight states each had an increase in PCI by a greater
multiple during 2000–3 and 2009–12, nine states, during 2004–8, had
an increase in PCI by a larger multiple than that for the GCS average.
Table 4.1 Per capita state income 2000–12
Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
GCS
Andhra Pradesh 21755 23340 24166 24452 26429 28265 30635 33703 37373 39553 41524 45240 47848
Bihar 7426 8381 7747 8543 7958 8773 8641 9837 10238 11313 11944 13388 15417
Chhattisgarh 17701 16624 18638 18192 20813 21463 21766 25258 26968 28623 29070 31666 34401
Goa 81138 75700 76682 79741 83242 88966 92752 99154 101246 107197 114241 119624 128686
Gujarat 29752 27670 29308 31250 35281 37803 42783 45677 49962 52591 57101 62229 66387
Haryana 31536 33262 34966 36658 39567 42187 45206 49363 52583 55898 61545 65840 69876
Jharkhand 18583 16411 17170 17310 18390 20848 19868 20031 23786 23040 25025 26822 28815
Karnataka 26022 25992 26319 27185 27772 30138 32911 35776 39831 42195 42281 45844 48789
Kerala 27971 28712 29940 31739 33354 36278 39601 42382 45733 47900 51791 56107 60063
Madhya Pradesh 17494 15957 16760 15779 17246 17449 18043 19361 19920 22029 23810 25268 27850
Maharashtra 34462 33113 33835 35613 37854 40509 45212 50563 55425 56028 60291 66198 70818
Odisha 15802 15341 16106 15822 18018 20180 21049 23445 25672 27300 28740 30804 32584
Punjab 33471 34134 34352 34690 36128 37228 38711 41877 44838 46599 48630 50998 52918
Rajasthan 18974 18119 19569 17336 21871 21056 22046 24176 24973 26772 27777 30326 31424
Tamil Nadu 28382 29767 29040 29274 30760 33998 38435 43941 46293 48216 52851 57671 61531
Uttar Pradesh 13496 13477 13456 13705 14145 14621 15276 16200 17065 17924 18761 19870 20708
West Bengal 20153 20670 21939 22436 23537 24869 26141 27875 29729 30883 33050 35114 37070
SCS
Arunachal Pradesh 21278 22345 25408 24083 26388 29111 29235 30057 32945 35056 39375 41599 42228
Assam 16539 16762 16873 17773 18570 18993 19369 19997 20684 21589 23019 24402 26133
Himachal Pradesh 30180 31627 32690 33740 35842 37892 40628 43834 47079 50045 53577 57730 60907
Jammu & Kashmir 22696 22920 22804 23734 24580 25478 26554 27731 29093 30541 31483 32992 34703
Manipur 19034 17459 18252 17804 19338 20786 21670 21671 22522 23545 24873 25917 27031
Meghalaya 21912 22523 23480 24223 25544 27026 28795 30650 31652 35326 37204 39459 42497
Mizoram 23585 24139 25071 26972 27146 27564 28753 29367 31780 35119 37792 40230 43593
Nagaland 29741 32261 33449 34163 33514 32784 35556 37706 39815 41646 43790 45620 49417
Sikkim 23545 24470 25446 27157 28867 30727 33324 34834 37108 42605 72985 78151 83509
Tripura 19002 20018 22795 23817 24897 26586 27793 29727 31630 34210 36720 39465 42468
Uttarakhand 18947 20854 21616 23377 24741 27497 30939 34594 40231 44631 52017 56182 60704
India 22440 22991 23770 24344 25912 27286 29413 31768 34241 36037 38527 41197 43282
Only four states – Bihar, Kerala, Gujarat and Haryana – posted an

increase in PCI by a higher multiple than that of the group average
during all three sub-periods (Table 4.1).
SCS: Himachal Pradesh and Assam occupied the highest and lowest
PCI positions in 2000. The PCI in Himachal Pradesh was 1.8 times that
of Assam. Assam continued to have the lowest PCI in the year 2012,
but Sikkim had replaced Himachal Pradesh as having the highest PCI.
But in 2012, the PCI of Sikkim was as much as 3.2 times that of Assam.
Thus, unlike the case of the GCS, the ‘PCI mutiples’ between the states
having the highest and lowest PCI increased during the study period.
The average PCI of the SCS increased by 2.1 times between 2000 and
2012. Only Tripura, Uttarakhand and Sikkim had an increase in PCI by
a larger multiple than that of the SCS average. Sikkim had the increase
in PCI by the highest multiple between 2000 and 2012. The average
PCI increased by successively higher multiples in the two sub-periods
following 2000–3. PCI increased by a higher multiple than that for the
group average only in Uttarakhand and Sikkim, in all three sub-periods.
While PCI increased by a higher multiple in six states compared to that
for the group average during 2000–3, during 2004–8 only three states
and during 2009–12 only two states had an increase in PCI by a larger
multiple than of the group average. Thus, increasingly fewer states
were contributing to the improvement in the group’s PCI performance
observed across the periods.
Analysis of income position becomes cumbersome beyond a point and
is of limited use to comment on the mobility of states in the middle of the
ladder. To get a holistic perspective on the income mobility of the states,
we undertake a rank analysis of the states under the GCS and SCS.
Rank Analysis
The evolution of ranks of the states under the general and special cate-
gory in the period under study has been depicted in Table 4.2. The states
have been ranked in descending order of PCI, that is the state having
the highest PCI gets rank 1 and the state having the second highest PCI
gets rank 2 and so on.
Chhattisgarh, Gujarat, Maharashtra, Odisha and Tamil Nadu were able
to improve their PCI ranking in 2009–12 compared to 2000–3. There was
no change in PCI rankings for Andhra Pradesh, Bihar, Goa, Karnataka,
Madhya Pradesh, Uttar Pradesh and West Bengal between 2000–3 and
2009–12. The PCI ranking for Haryana, Jharkhand, Kerala, Punjab, and
Rajasthan declined during 2009–12 compared to 2000–3.
To give credence to the ranks, the average rank obtained by the states
in the study period and the degree of dispersion of ranks over the years
are also provided. If we consider the average ranks, Goa, Haryana,
Table 4.2 Ranking of states 2000–12
Std Worst
Avg Dev Year
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Rank Rank Cases
GCS
Andhra 9 9 9 9 9 9 9 9 9 9 9 9 9 9 0.0 0
Pradesh
Bihar 17 17 17 17 17 17 17 17 17 17 17 17 17 17 0.0 0
Chhattisgarh 13 12 12 11 12 11 12 11 11 11 11 11 11 11 0.7 5
Goa 1 1 1 1 1 1 1 1 1 1 1 1 1 1 0.0 0
Gujarat 5 7 6 6 5 4 4 4 4 4 4 4 4 5 1.0 3
Haryana 4 3 2 2 2 2 3 3 3 3 2 3 3 3 0.6 1
Jharkhand 12 13 13 13 13 13 14 14 14 14 14 14 14 13 0.7 7
Karnataka 8 8 8 8 8 8 8 8 8 8 8 8 8 8 0.0 0
Kerala 7 6 5 5 6 6 5 6 6 6 6 6 6 6 0.6 1
Madhya 14 14 14 15 15 15 15 15 15 15 15 15 15 15 0.4 0
Pradesh
Maharashtra 2 4 4 3 3 3 2 2 2 2 3 2 2 3 0.8 2
Odisha 15 15 15 14 14 14 13 13 12 12 12 12 12 13 1.3 6
Punjab 3 2 3 4 4 5 6 7 7 7 7 7 7 5 1.9 7
Rajasthan 11 11 11 12 11 12 11 12 13 13 13 13 13 12 0.9 5
Tamil Nadu 6 5 7 7 7 7 7 5 5 5 5 5 5 6 1.0 5
Uttar Pradesh 16 16 16 16 16 16 16 16 16 16 16 16 16 16 0.0 0
West Bengal 10 10 10 10 10 10 10 10 10 10 10 10 10 10 0.0 0
SCS
Arunachal 7 7 4 6 5 4 5 6 5 7 5 5 8 6 1.3 4
Pradesh
Assam 11 11 11 11 11 11 11 11 11 11 11 11 11 11 0.0 0
Himachal 1 2 2 2 1 1 1 1 1 1 2 2 2 1 0.5 6
Pradesh
Jammu & 5 5 7 8 9 9 9 9 9 9 9 9 9 8 1.5 9
Kashmir
Manipur 8 10 10 10 10 10 10 10 10 10 10 10 10 10 0.6 0
Meghalaya 6 6 6 5 6 7 6 5 7 5 7 8 6 6 0.9 4
Mizoram 3 4 5 4 4 5 7 8 6 6 6 6 5 5 1.4 6
Nagaland 2 1 1 1 2 2 2 2 3 4 4 4 4 2 1.2 5
Sikkim 4 3 3 3 3 3 3 3 4 3 1 1 1 3 1.0 2
Tripura 9 9 8 7 7 8 8 7 8 8 8 7 7 8 0.7 2
Uttarakhand 10 8 9 9 8 6 4 4 2 2 3 3 3 5 3.0 6
Table 4.3 Coefficient of concordance 2000–12
GCS 0.98 (203.13)

SCS 0.84 (109.33)
The figures in parentheses indicate the computed Chi-square values.
Maharashtra, Gujarat and Punjab occupy the top five, and Bihar, Uttar
Pradesh, Madhya Pradesh, Jharkhand and Odisha occupy the bottom
five ranks in terms of PCI.
When we consider the evolution of the state ranks within the SCS
across the three sub-periods we find that the PCI ranks of Jammu and
Kashmir, Meghalaya, Mizoram, Nagaland declined, and that of Arunachal
Pradesh, Assam, Manipur and Tripura remained unchanged, and that of
Sikkim and Uttarakhand improved in 2009–12 compared to 2000–3.
To ascertain the stability of the degree of consistency or concordance
between the rankings of the states in different years, taken as a whole,
the coefficient of concordance has been computed. The coefficient of
concordance signifies the agreement of ranks over the entire period
and for the sub-periods for the general and special category states. We
find that the null hypothesis of rank disagreement is rejected for both the
sub-periods and for both GCS and SCS (Table 4.3).
Following the methodology of Boyle and McCarthy (1997), one can
construct an index of concordance to ascertain the mobility of the ranks
over the years. Boyle and McCarthy proposed a simple measure for assessing
the intertemporal mobility of states (or countries) in terms of the ranking of
the states by income levels. Boyle and McCarthy proposed a multi-annual
version (RCt) and a binary version (RCat) of the rank concordance index.
The multi-annual measure, extending over the whole period, contains all
possible pairs of years for which the binary measure could be computed.
We have calculated the multi-annual measure for the intertemporal
mobility of the states. The measure seeks to capture the change in the
rankings as reflected by Kendall’s index of rank concordance. The value of
the rank concordance measure lies between zero and unity. The closer the
value of the measure to zero the greater the extent of mobility within the
distribution. We have computed the index of concordance for each cate-
gory of states and that for the pre- and post-reform period (Table 4.4). The
index of concordance indicates that among the GCS, the relative income
position of the states did not differ much over the entire 13-year period.
In contrast to the GCS, there is fair amount of mobility of ranks for the
special category states when we consider the full 13-year period. Seen in
terms of the three sub-periods, the concordance index indicates that there
Table 4.4 Index of rank concordance
Year GCS SCS
2000 1.00 1.00

2001 0.99 0.97
2002 0.99 0.95
2003 0.99 0.94
2004 0.99 0.94
2005 0.99 0.92
2006 0.98 0.90
2007 0.98 0.88
2008 0.98 0.86
2009 0.98 0.85
2010 0.98 0.85
2011 0.98 0.84
2012 0.98 0.84
is no mobility of the states falling under GCS in the post-crisis period. For
the SCS, there has been relatively higher mobility across the states in the
first two sub-periods and relatively less mobility in the post-crisis period.
4.3 Inequality measures
To add robustness to our findings based on rank analysis, we use several

other measures of inequality of per capita income across the states under
the ‘general’ and ‘special’ category. This also helps us to better under-
stand the dynamics of inequality in income over time. We report the
Gini coefficient and a series of other summary inequality measures, viz,
Entropy Index, Kakwani Index, Theil Index and Mehran Index. These
measures were selected to reflect a variety of inequality attributes of the
income distributions.
The Gini coefficient is sensitive to changes across the distribution.
It meets the criteria of mean independence (double everyone’s income
and the value of the index remains the same), symmetry (any two indi-
viduals can exchange their positions in the income scale, but the index
of inequality does not change), independence from sample size, and the
Pigou-Dalton transfer sensitivity (inequality is increased when a transfer
is made from a poor person to a rich one). Gini and Theil indices are
measures that rank the distribution of income with equal weights above
and below the average. The Entropy Index is most sensitive to changes
at the lower end of the distribution. The Theil Index is more balanced
in giving weight across the distribution and so is closer to the Gini in
that regard. The Mehran Index gives higher weights to low incomes. The
Table 4.5 Inequality measures
Entropy index Kakwani Mehran measure Theil index

(GE(a), a = −1) measure (GE(a), a = 1)
Year GCS SCS GCS SCS GCS SCS GCS SCS
2000 0.141 0.016 0.071 0.010 0.361 0.142 0.140 0.017

2001 0.131 0.020 0.069 0.012 0.363 0.157 0.131 0.020
2002 0.135 0.020 0.067 0.012 0.359 0.157 0.127 0.020
2003 0.139 0.020 0.072 0.012 0.373 0.156 0.136 0.020
2004 0.144 0.018 0.069 0.010 0.368 0.148 0.130 0.017
2005 0.144 0.017 0.070 0.010 0.371 0.145 0.132 0.016
2006 0.160 0.020 0.074 0.011 0.387 0.158 0.137 0.019
2007 0.157 0.024 0.073 0.013 0.388 0.171 0.134 0.022
2008 0.157 0.028 0.071 0.015 0.384 0.184 0.128 0.025
2009 0.151 0.031 0.070 0.017 0.381 0.194 0.127 0.027
2010 0.155 0.054 0.072 0.030 0.387 0.251 0.130 0.052
2011 0.151 0.056 0.070 0.031 0.385 0.256 0.127 0.054
2012 0.146 0.057 0.070 0.032 0.383 0.258 0.126 0.055
Kakwani Index is similar to the Gini, which is 1 minus the area under
the Lorenz Curve measuring the inequality in the distribution of income,
except that the Kakwani Index squares the area under the Lorenz Curve
so that larger values are given greater weights. The Gini coefficient is the
most widely used indicator of inequality. Before we give a detailed analysis
of inequality based on the Gini coefficient, we discuss the status with
regard to inequality in per capita income as suggested by a broad array of
inequality indices (Table 4.5). The evolution in the indices values brings
out the following
GCS:
In the 2000–3 period, inequality measured through the Entropy Index
and Theil Index broadly declined, whereas that measured through the
Kakwani and Mehran measure increased. The Kakwani measure also
suggested a decline in the years 2001 and 2002 before rising sharply in
the year 2003. In the 2004–8 period, inequality measured through the
Entropy index, Kakwani measure and Mehran measure increased, though
the Theil Index suggested a decline. In the 2009–12 period, except for
the Mehran measure, inequality declined as per the other three meas-
ures. Thus, if we consider what the majority indicators convey about
inequality in the three sub-periods, we find that inequality increased in
the high-growth phase of 2004–8 but declined in the post-crisis period.
If we consider the end points, the Entropy Index and Mehran measure
suggest increased inequality, and the Kakwani measure and Theil Index
suggest a decline in inequality in 2012 compared to 2000.
SCS
Looking at the end points, inequality increased for the SCS by all four
measures in 2012 compared to 2000. Further, while the pace of increase
in inequality was modest during the high-growth phase, it increased
sharply during 2009–12. Here, we may recall that per capita growth was
relatively higher in the post-crisis period and relatively lower in the
2004–8 period for the SCS compared to the GCS. The inequality meas-
ures for both GCS and SCS broadly suggest higher growth is accompa-
nied with higher inequality.
When we consider the evolution of Gini for the total as well as sectoral
SDP, we observe the following patterns for GCS and SCS.
GCS
During 2000–12, amongst all sectors, Gini was maximum for the
secondary and tertiary sectors and was minimum for the primary sector
in all the years (Figure 4.1). Gini for the primary sector and the secondary
sector declined marginally and did not change for the tertiary sector in
the year 2012 compared to the same in 2000. The Gini coefficient at
two decimal value did not change for the overall SDP in the year 2012
compared to 2000.
0.40
0.35
0.30
Gini coefficient
0.25
0.20
0.15
0.10
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
SDP Primary Secondary Tertiary
Figure 4.1 Evolution of Gini coefficient – GCS

0.40
0.35
0.30
Gini coefficient
0.25
0.20
0.15
0.10
0.05
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
SDP Primary Secondary Tertiary
Figure 4.2 Evolution of Gini coefficient – SCS
SCS
For the SCS, the interesting finding is that the Gini coefficient for the
secondary and tertiary sectors increased substantially over the entire
period of our study (Figure 4.2). The increase was more perceptible in
the post-crisis period. Although the Gini coefficient for the primary
sector increased during the year 2000–3, it moderated in the subsequent
two sub-periods, and the value of the Gini in 2012 was slightly higher
than its value as in 2000. The Gini of overall income deteriorated (went
up) between the beginning and end points of our study, with much of
the increase noticed in the 2009–12 period.
Given that the inequality of income has deteriorated over the years,
it would be relevant from a policy perspective to inquire whether
inequality is pervasive in all sectors of the economy or is confined to
a few specific sectors. In other words, deciphering the sectoral pattern
of inequality can help in identifying the source of inequality. Towards
this end, we segregate the economy into three broad sectors – primary,
secondary and tertiary. Shorrocks (1982), Lerman and Yitzhaki (1985)
and Stark, Taylor and Yitzhaki (1986) have suggested methods to
decomposes the Gini coefficient by income source. The decomposition
method also allows the calculation of the impact that a marginal change
in a particular income source will have on inequality. Feldman (2005)
has operationalized this sort of decomposition. Extending the results
of Shorrocks(1982), Lerman and Yitzhaki (1985) show that the of Gini
coefficient for total income inequality, G, when decomposed by income

sources can be represented as the combined influence of the share of
each source k (Sk) in total income, the source Gini (Gk), corresponding
to the distribution of income from source k, and the Gini correlation of
income from source k (Rk), with the distribution of total income.
As noted by Stark and colleagues (1986), the relation among these three
terms has a clear and intuitive interpretation. If an income source repre-
sents a large share of total income, it may potentially have a large impact
on inequality. However, if it is perfectly equally distributed (Gk = 0), it
cannot influence inequality even if its magnitude is large. On the other
hand, if this income source is large and unequally distributed (Sk and Gk
are large), it may either increase or decrease inequality depending upon
where the recipients of this income are placed in the income distribution.
If the income source is unequally distributed and flows disproportion-
ately towards those at the top of the income distribution (Rk is positive
and large), its contribution to inequality will be positive. However, if it
is unequally distributed but targets poor households (individuals), the
income source may have an equalizing effect on the income distribution.
Further, Lerman and Yitzhaki (1985) show that by using this particular
method of Gini decomposition one can estimate the effect on inequality
of small changes in a specific income source, holding income from all
other sources constant. Such decomposition has been tried for the income
from different sources in the GCS and SCS and their implication for
inequality. The last column of the Table 4.6 refers to the impact that a 1
per cent change in the respective income source will have on inequality.
Four additional elements are included in the table of results: the share of
each income source in total income (Sk), the source Gini (Gk), the Gini
correlation of income from source k with the distribution of total income
(Rk), and the share of each income source in total inequality (Figure 4.1).
GCS
If we see the result for 2000 for the GCS, we find that a 1 per cent increase
in tertiary income, other things being equal, increases the Gini coeffi-
cient of total income by 0.034 per cent. Tertiary income had the largest
share in total income (0.337) and is unequally distributed (0.303), and
the Gini correlation between tertiary income and total income is the
highest (0.953) compared to the remaining two sectors, indicating that
tertiary income favours the rich more than did any other income source.
An income source may be unequally distributed yet favour the poor. This
is the case for income from primary sector for the year 2000. Primary
sector income had an equalizing effect on the distribution of total
income in the year 2000. This is mainly due to two factors: The source
Table 4.6 Gini decomposition by income sources
GCS SCS
Source Sk Gk Rk Share % Change Sk Gk Rk Share % Change
Primary 2000 0.248 0.194 0.71 0.128 −0.121 0.313 0.14 0.181 0.079 −0.234
Secondary 2000 0.295 0.369 0.931 0.378 0.082 0.204 0.258 0.729 0.383 0.179
Tertiary 2000 0.454 0.303 0.953 0.488 0.034 0.491 0.139 0.787 0.536 0.045
SDP 2000 0.269 0.1
Primary 2001 0.240 0.188 0.794 0.134 −0.106 0.312 0.169 0.336 0.161 −0.151
Secondary 2001 0.293 0.377 0.955 0.395 0.102 0.214 0.242 0.619 0.291 0.077
Tertiary 2001 0.464 0.287 0.947 0.472 0.008 0.482 0.142 0.888 0.551 0.068
SDP 2001 0.267 0.11
Primary 2002 0.242 0.176 0.741 0.121 −0.122 0.304 0.162 0.631 0.285 −0.018
Secondary 2002 0.284 0.382 0.962 0.398 0.114 0.226 0.221 0.593 0.274 0.048
Tertiary 2002 0.47 0.285 0.947 0.484 0.014 0.474 0.14 0.76 0.466 −0.008
SDP 2002 0.262 0.108
Primary 2003 0.222 0.198 0.755 0.121 −0.101 0.295 0.162 0.568 0.253 −0.043
Secondary 2003 0.297 0.38 0.947 0.391 0.093 0.231 0.21 0.529 0.238 0.007
Tertiary 2003 0.48 0.293 0.954 0.489 0.009 0.477 0.141 0.828 0.518 0.041
SDP 2003 0.274 0.108
Primary 2004 0.229 0.204 0.657 0.114 −0.114 0.294 0.155 0.572 0.256 −0.038
Secondary 2004 0.297 0.377 0.952 0.397 0.101 0.24 0.205 0.582 0.281 0.041
Tertiary 2004 0.473 0.291 0.951 0.489 0.015 0.469 0.136 0.755 0.474 0.005
SDP 2004 0.268 0.102
Primary 2005 0.216 0.192 0.679 0.104 −0.111 0.281 0.143 0.633 0.259 −0.022
Secondary 2005 0.306 0.365 0.957 0.395 0.09 0.253 0.219 0.546 0.31 0.057
Tertiary 2005 0.479 0.297 0.948 0.501 0.022 0.466 0.13 0.699 0.431 −0.035
SDP 2005 0.27 0.098
Primary 2006 0.212 0.197 0.667 0.1 −0.112 0.266 0.145 0.626 0.228 −0.039
Secondary 2006 0.302 0.373 0.965 0.389 0.088 0.261 0.218 0.631 0.337 0.076
Tertiary 2006 0.486 0.302 0.969 0.511 0.024 0.473 0.135 0.729 0.436 −0.037
SDP 2006 0.279 0.107
Primary 2007 0.202 0.192 0.65 0.091 −0.112 0.255 0.15 0.575 0.191 −0.065
Secondary 2007 0.309 0.363 0.973 0.392 0.083 0.266 0.228 0.68 0.357 0.091
Tertiary 2007 0.49 0.305 0.967 0.518 0.028 0.479 0.14 0.778 0.453 −0.026
SDP 2007 0.279 0.116
Primary 2008 0.194 0.196 0.637 0.089 −0.106 0.25 0.152 0.463 0.143 −0.107
Secondary 2008 0.311 0.349 0.958 0.379 0.069 0.27 0.244 0.785 0.419 0.149
Tertiary 2008 0.495 0.304 0.966 0.532 0.037 0.48 0.149 0.757 0.438 −0.042
SDP 2008 0.274 0.123
Primary 2009 0.185 0.194 0.564 0.074 −0.111 0.233 0.145 0.308 0.081 −0.152
Secondary 2009 0.301 0.348 0.958 0.37 0.069 0.284 0.241 0.843 0.45 0.167
Tertiary 2009 0.514 0.304 0.968 0.556 0.042 0.484 0.148 0.837 0.469 −0.015
SDP 2009 0.272 0.128
Primary 2010 0.176 0.2 0.598 0.076 −0.1 0.206 0.133 0.275 0.042 −0.163
Secondary 2010 0.302 0.356 0.966 0.374 0.073 0.319 0.354 0.945 0.6 0.281
Tertiary 2010 0.522 0.302 0.967 0.549 0.028 0.475 0.154 0.866 0.358 −0.118
SDP 2010 0.277 0.178
Primary 2011 0.172 0.192 0.558 0.067 −0.105 0.203 0.147 0.326 0.053 −0.149
Secondary 2011 0.299 0.352 0.965 0.369 0.071 0.323 0.357 0.938 0.596 0.273
Tertiary 2011 0.53 0.302 0.969 0.564 0.034 0.475 0.163 0.823 0.351 −0.124
SDP 2011 0.275 0.181
Primary 2012 0.163 0.185 0.523 0.057 −0.106 0.194 0.145 0.116 0.018 −0.176
Secondary 2012 0.297 0.353 0.963 0.368 0.071 0.322 0.356 0.902 0.565 0.243
Tertiary 2012 0.54 0.302 0.968 0.575 0.035 0.484 0.167 0.945 0.417 −0.067
SDP 2012 0.275 0.183
Gini is the lowest (0.194) for this sector, and Gini correlation (0.710)
between primary sector income and total income again is the lowest
compared to other sectors. The primary sector for the GCS continued
to have an positive impact on inequality all throughout the period of
our study. In other words, in spite of the Gini for the primary sector
increasing from 0.194 in the year 2000 to 0.197 in 2006, primary wsector
income had an equalizing effect on the distribution of total income.
This was possible because income from the primary sector had a lesser
bias towards the rich in the income scale. Unlike the primary sector,
both the secondary and tertiary sectors had an unequalizing effect on
total income inequality in all the years under study. We also find that
the primary sector not only contributes the least to income inequality,
but its contribution has gradually fallen over the years. The secondary
sector was the second-largest contributor to total income inequality. The
contribution of the secondary sector to total income inequality, which
has increased between 2000 and 2007, has fallen in the subsequent
years. In 2012, the secondary sector contributed less to total income
inequality than in 2000. During the entire period of study, the tertiary
sector contributed the most to total income inequality, followed by the
secondary sector and primary sector, respectively. The tertiary sector is
not only the largest contributor to total income inequality, its contri-
bution rose gradually until 2007 and quite sharply in the subsequent
years. How to contain the increasing contribution of the tertiary sector
to overall inequality in the 2000–12 period has been a challenge for
policy makers.
SCS
As in the case of GCS, the primary sector had an equalizing effect on
total income inequality, in all the years under study. However, unlike the
case of GCS, the tertiary sector also had an equalizing effect on distribu-
tion of income during 2005–12. The secondary sector, however, had an
unequalizing effect on total income inequality during the entire period
of study. Though the tertiary sector contributed the most to the total
income inequality in 2000, its contribution declined in the subsequent
years. The primary sector’s contribution to total income inequality
increased during 2000–5 and declined sharply in subsequent years,
contributing negligibly in 2012. The secondary sector’s contribution to
overall income inequality follows a pattern just opposite to that of the
primary sector. Its contribution fell until 2003 before rising sharply in
the subsequent years. Until the year 2009, the tertiary sector contributed
the maximum to total income inequality, followed by the secondary
and primary sectors. However, from 2012 onwards, the secondary sector
contributed the most to total income inequality.
4.4 Convergence amongst Indian states
The literature on regional catch up or convergence has enriched, taking

a cue from the seminal contribution of Barro and Sala-i-Martin (1991).
The two notions of convergence that are used extensively in empirical
works are Sigma (σ) convergence and Beta (β) convergence. In simple
terminology, (σ) convergence requires the cross-sectional disparity of
per capita income to decline over time. Beta convergence, on the other
hand, requires poorer economies to grow faster than wealthier ones.
The idea that initially poorer regions might grow faster has its formal
conceptualization in the neoclassical growth model of Solow (1956).
The key assumption that drives the convergence result in neoclassical
models is the diminishing returns to reproducible capital. The relatively
less well-off economy is generally endowed with lesser stocks of physical
capital and, hence, higher marginal rates of return on capital. Therefore,
for any given rate of investment, the relatively worse-off regions will
have faster growth in the transition phase. Here, it is pertinent to note
that such β-convergence implied by the Solow model is conditional,
and is perceptible only after other factors, which may cause variation
in steady states, have been accounted for. Anything that drives apart
investment rates in rich and poor regions will, ceteris paribus, drive their
steady-state income levels apart, even as each region is converging to its
diverging steady state. In contrast to this, one can define a stronger kind
of convergence that takes place unconditionally or absolutely, where
initially poorer states grow faster, notwithstanding differences in initial
conditions. In terms of the Solow (1956) model, if one postulates that
all regions, in the long run, have no tendency to display variation in
the rates of investment, capital depreciation, population growth and
so forth, then such a model would generate unconditional or absolute
convergence to a common value of per capita income. Subsequently,
Mankiw, Romer, and Weil (1992) suggested that a natural way to study
convergence is by using the augmented Solow model where growth is
expressed explicitly as a function of the determinants of the ultimate
steady state and the initial level of income is a ‘natural’ way to study
convergence.
Though a large number of studies have empirically tested the conver-
gence phenomenon across nations, we present the findings of some
of the recent studies on the Indian states/regions (Table 4.7). A typical
Table 4.7 Select convergence studies for Indian states
Study Period States Main results
Tiwari (2012) 1981–2008 27 Strong evidence against the convergence among the Indian states
Agarwalla and Pangotra 1980–2006 25 Convergence, conditional upon growth rates of inputs, and technological
(2011) growth rate.
During the period of 1992 to 2006, the period corresponding to structural
reforms, the speed of convergence has been faster, Speed of convergence was
higher for special category states.
Kalra, Sanjay and 1960–2004 15 Evidence of divergence over the entire sample period, convergence during
Sodsriwiboon, Piyaporn sub-periods corresponding to structural breaks, and club convergence. There
(2010) is strong evidence of club convergence among the high-and low-income
states; the evidence for middle-income states is mixed. Dynamic spillover
effects among states are small.
Purfield (2006) 1974–2003 15 Absolute convergence but rate of convergence is about 1.5% per annum
which suggests a half life of 50 years. Structure of economic activity matters
in addition to polices in influencing the speed of convergence.
Aiyar (2001) 1971–96 19 Conditional convergence; infrastructure, private investment and
non-measured institutional factors matter.
Ahluwalia (2002) 1981–99 14 Gini coefficient of per capita SDP (weighted by population) increased in
the 1990s compared to the 1980s. Convergence not allowed for, but private
investment matters for growth.
Singh and Srinivasan (2002) 1991–9 14 No clear evidence of conditional convergence or divergence. Financial
variables matter for growth.
Sachs, Bajpai and Ramiah 1980–98 14 Absolute divergence for all states (and for rich group but not poor group) for
(2002) 1990–98; qualitative discussion of possible conditioning factors (social and
geographic variables).
Kamakshya Trivedi (2002) 1960–92 16 There is no evidence of unconditional convergence, but there is clear and
robust evidence of conditional convergence after holding constant proxies
for educational and non-educational human capital and physical capital.
pattern adopted in most of the studies is to test for convergence in

various sub-periods. The broad finding from these studies point to the
absence of unconditional convergence, but the presence of conditional
(β) convergence in the post-reform period.
It has been established in the literature that Beta convergence is a
necessary, but not sufficient, condition for Sigma convergence (Barro
and Sala-i-Martin, 1995). Other things being equal, β-convergence may
eventually lead to σ-convergence. However, if other things are not
equal, maybe because each region is subject to random disturbances,
then β-convergence need not imply a reduction in the dispersion of
income levels. Hence, conditional β-convergence as implied by the
Solow model is consistent with σ-divergence. For instance, anything
that drives apart steady-state incomes in rich and poor regions will lead
to σ-divergence, although each region might still be (conditionally)
converging to a diverging steady state. A complete analysis1 of conver-
gence behaviour would require us to adopt the scheme of investigation
based as per Figure 4.2.
Following Figure 4.3, we have studied both the Sigma and Beta conver-
gences for the GCS and SCS. In view of the econometric issues involved,
conditional convergence has been studied using both LSDV and GMM
estimates. In the two-way fixed effects model, all the conditioning
Tests of convergence
Sigma (σ) Beta (β) convergence

convergence
Standard deviation of per

capita income across regions
should be declining over time
Unconditional Conditional
If initial per capita income is If a negative coefficient is obtained

negatively related to the when initial per capita income is
growth of per capita income in regressed on growth rate of income
the study period. after inclusion of control variables
in the regression specification
Figure 4.3 Scheme of convergence analysis

0.80
Log of S.D. of per capita Income
0.70
0.60
0.50
0.40
0.30
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Primary Secondary Tertiary SDP
Figure 4.4 Sigma convergence – GCS
variables are subsumed under the state-specific fixed effects instead of

explicitly modelling a few conditioning variables.2 In spite of the superi-
ority of GMM estimates, the LSDV estimates are also computed to study
the dispersion of fixed effects across the states which, in effect, represent
the steady-state incomes.
Results of the convergence analysis

Sigma (σ) convergence: Sigma (σ) convergence requires cross-sectional
disparity of per capita income to declines over time. To examine (σ)
convergence, the standard deviation of logarithm of SDP per capita and
logarithm of per capita income of the different sectors are computed
and their movement over time is studied. Figures 4.4 and 4.5 depicts the
evidence on Sigma convergence the standard deviation of the sectoral
dispersion of output for the GCS and the SCS respectively.
GCS
The dispersion of per capita GSDP declined in 2001 compared to 2000
but increased gradually in the next two years to reach the level of 2000
in 2003. The dispersion increased during 2004–8 but declined again
gradually during 2009–12 (Figure 4.4). The standard deviation of log of
per capita SDP was marginally higher at 0.52 in 2012 compared to 0.51
in 2000. At the sectoral level, spatial dispersion of per capita output
declined in the primary and secondary sector and increased for the
tertiary sector in 2012 compared to 2000.
0.75
Log of S.D. of per capita Income
0.65
0.55
0.45
0.35
0.25
0.15
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Primary Secondary Tertiary SDP
Figure 4.5 Sigma convergence – SCS
SCS
The standard deviation of log of per capita GSDP increased gradually
from 0.19 to 0.24 in 2008 and increased sharply thereafter to reach 0.35
in 2012 (Figure 4.5). Thus, we find evidence against Sigma convergence
is more pronounced for the SCS than the GCS. As far as sectoral disper-
sion of per capita SDP is concerned, we find an increase for the primary
sector between 2000 and 2003, which declined thereafter to reach the
same level in 2012 as that of 2000. The dispersal of per capita output
in the secondary sector became more pronounced, especially in the
post-crisis period. The pattern observed for the tertiary sector is similar
to that of the secondary sector.
Given the broad evidence against Sigma convergence in the
post-2000 period, we move on to see whether Beta convergence holds
for the Indian states. As indicated in the flow chart, we have first
tested for unconditional convergence, both in the cross-section and
panel dimension, based on a linearized version of the original Barro
and Sala-i-Martin specification. The regression specification broadly
involves regressing ‘growth in income’ on initial income. Growth, in
the original works of Barro and Sala-i-Martin meant the average annual
growth rates. Average annual growth rates, are based on end points
and do not make use of all the available data points. The compound
annual growth rate (CAGR) are derived from a richer information
set as they make use of all available data points, as such, are more
Table 4.8 Absolute convergence scenario across states and sectors
Cross-section Panel
Variable GCS SCS GCS SCS
Agriculture No No Yes No
Primary No No Yes No
Manufacturing No No No No
Secondary No No No No
Tertiary No No No No
SDP No No No No
reliable. We make use of CAGR-based growth rates to comment on Beta

convergence. The broad synoptic view of the results from the regres-
sion exercises is presented in Table 4.8. The CAGR-based cross-section
regressions indicate lack of absolute convergence in per capita state
income, both for the general and the special category states. If one
were to use the CAGR-based absolute convergence estimations in the
cross-section dimension, no evidence would be found for the absolute
convergence in the cases of the GCS or SCS for any of the sub-sectors
also. The panel unconditional convergence estimations, based on a
reasonably large number of observations, provide some interesting
insights. First, as was the case of cross-section estimates, there is no
evidence of absolute convergence for either the general or the special
category states during the entire period of study as far as total income
is concerned. However, unlike the cross-section results, the panel esti-
mates provide evidence in favour of absolute convergence for the GCS
during the period of study only for the agricultural and primary sectors
income. Evidence in favour of convergence, however, is not found for
the other sectors, either for the GCS or the SCS. The positive implica-
tion for equality of the growth in primary sector income as indicated
by the Gini decomposition for the GCS is also corroborated by the
evidence suggested by the absolute convergence regression estimates
in the panel dimension.
Conditional β convergence
When control variables are accounted for in the regression specifica-
tions, different states are not converging to a single steady-state income,
but each of them is converging to their own steady-state incomes. To
examine whether conditional convergence is present, the two-way fixed
effects model was estimated using an equation for total as well as sectoral
income. The results confirm existence of conditional convergence in
Table 4.9 Fixed effect estimates of convergence
GCS SCS
Variable Coefficient P-value R-square SD of FE Coefficient P-value R-square SD of FE
2000–4
Primary −1.324 <0.0001 0.673 0.462 −0.799 <0.0001 0.731 0.234
Secondary −0.85 <0.0001 0.762 0.631 −0.942 <0.0001 0.757 0.379
Tertiary −0.486 <0.0001 0.869 0.263 −0.527 0.0004 0.787 0.141
SDP −1.212 <0.0001 0.787 0.609 −0.791 <0.0001 0.827 0.169
2005–8
Primary −0.878 <0.0001 0.706 0.324 −0.601 0.0285 0.583 0.161
Secondary −0.727 <0.0001 0.803 0.524 −0.502 0.0039 0.738 0.237
Tertiary −0.352 0.0001 0.962 0.21 −0.345 0.0442 0.882 0.101
SDP −0.601 <0.0001 0.895 0.323 −0.19 0.176 0.895 0.056
2009–12
Primary −0.98 <0.0001 0.67 0.362 −0.921 <0.0001 0.693 0.237
Secondary −0.718 <0.0001 0.852 0.487 −0.593 0.0001 0.883 0.297
Tertiary −0.303 0.0203 0.961 0.171 −0.813 0.0001 0.876 0.254
SDP −0.561 0.0001 0.938 0.295 −0.425 0.0008 0.959 0.124
2000–12
Primary −0.671 <0.0001 0.482 0.241 −0.345 <0.0001 0.42 0.094
Secondary −0.268 <0.0001 0.613 0.188 −0.247 <0.0001 0.579 0.116
Tertiary −0.174 <0.0001 0.913 0.101 −0.146 0.0025 0.781 0.049
SDP −0.333 <0.0001 0.761 0.174 −0.098 0.0101 0.825 0.034
total as well as sectoral income for both the general and special category
states during 2000–12 at 5 per cent level of significance. The results are
discussed in some detail for the GCS and the SCS.
GCS: The dispersion of individual cross-section effects obtained from
the LSDV estimates for per capita total income or GSDP came down
successively in the two sub-periods following 2000–3. As the individual
cross-section effects represent the steady-state incomes, the decline in
dispersion can be seen as the catching up of poorer states with their
richer counterparts successively during the 2004–8 and 2009–12 periods
compared to 2000–3. The standard deviation of fixed effects has also
declined successively for the secondary and tertiary sectors in the two
sub-periods following 2000–4. The LSDV estimates, however, indicate
the successive slowing down of the speed of convergence for the GSDP
as well as the secondary and tertiary sectors’ output in the 2005–8 and
2009–12 periods compared to 2000–3.The speed of convergence, which
had declined in the 2005–8 period compared to the 2000–4 period for the
primary sector, has again increased during 2009–12 compared to 2005–8.
Seen from the inequality perspective, the results of LSDV estimates
(Table 4.9) are reassuring in the sense that the dispersion of steady state
income declined across the states in the post-2000 period.
SCS: The standard deviation of fixed effects from the per capita
GSDP estimations, which declined during 2005–8 compared to 2000–4,
increased in the 2009–12 period compared to 2005–8. This pattern of
decline in dispersal of fixed effects in 2005–8 and an increase in 2009–12
is also observed for all the sectors. This signifies that the catching up
which was observed during 2005–8 seems to be absent during 2009–12
for the special category states. As far as the speed of convergence is
concerned, it declined for the three sectors and GSDP during 2005–8
before gathering momentum during 2009–12. Thus, the special cate-
gory states converged to their steady-state income at a faster pace in the
post-crisis period compared to the 2005–8 period.
The advantage of the LSDV estimates is that the fixed effects estimated
from the convergence regressions allows us to comment on the steady-state
income of the states. As can be seen from the Table 4.10, the fixed effect
estimates are significant at less than 1 per cent level of significance.
Keeping in view the fact that lagged dependent variable is used as
a regressand in the estimation, the Generalized Method of Moments
(GMM) estimation of the convergence coefficients have also been
computed to arrive at more efficient estimates.
The GMM estimates (Table 4.11) indicate convergence for GSDP
and also for the primary and secondary sectors’ output for the GCS.
Table 4.10 Steady-state income of states 2005–12
Steady-State Initial Income

State Estimate Pr > |t| Income (2005) Difference
Andhra Pradesh 4.928 <0.0001 51737 28265 23472

Bihar 4.376 <0.0001 15335 8773 6562
Chattisgarh 4.774 <0.0001 36880 21463 15417
Goa 5.388 <0.0001 142601 88966 53635
Gujarat 5.071 <0.0001 70851 37803 33048
Haryana 5.097 <0.0001 75052 42187 32865
Jharkhand 4.703 <0.0001 31537 20848 10689
Karnataka 4.947 <0.0001 53973 30138 23835
Kerala 5.029 <0.0001 64678 36278 28400
Maharashtra 5.103 <0.0001 76054 40509 35545
Madhya Pradesh 4.667 <0.0001 29120 17449 11671
Odisha 4.76 <0.0001 35739 20180 15559
Punjab 4.996 <0.0001 60082 37228 22854
Rajasthan 4.743 <0.0001 34466 21056 13410
Tamil Nadu 5.038 <0.0001 65971 33998 31973
Uttar Pradesh 4.566 <0.0001 23324 14621 8703
West Bengal 4.822 <0.0001 41019 24869 16150
Arunachal Pradesh 1.611 0.0016 61295 29111 32184
Assam 1.529 0.0017 34936 18993 15943
Himachal Pradesh 1.667 0.0015 89586 37892 51694
Jammu & Kashmir 1.575 0.0018 48001 25478 22523
Manipur 1.54 0.0018 37595 20786 16809
Meghalaya 1.611 0.0016 61461 27026 34435
Mizoram 1.608 0.0016 60151 27564 32587
Nagaland 1.625 0.0017 67579 32784 34795
Tripura 1.612 0.0015 61593 26586 35007
Uttarakhand 1.685 0.0012 101315 27497 73818
Table 4.11 GMM estimates
Period-specific effect Without period-specific effect
GCS SCS
P-value P-value
of Sargan of Sargan
Variable Coefficient P-value test Coefficient P-value test
Primary −0.611 0.000 0.529 −0.202 0.000 0.410

Secondary −0.253 0.039 0.290 −0.256 0.000 0.259
Tertiary 0.145 0.376 0.320 −0.222 0.000 0.323
SDP −0.236 0.030 0.373 −0.166 0.000 0.461
However, for the SCS the regression results suggest convergence in

GSDP as well output in all sub-sectors. The GMM estimator, however,
provides a different picture of the speed of convergence across the two
decades as compared to the LSDV estimator. Compared to the LSDV
estimates, the GMM estimates indicate substantial lower speed of
convergence for all sectors and for the overall GSDP for the GCS. For
the SCS, the speed of convergence, as suggested by the more efficient
GMM estimates, is much less for the primary sector than the same
suggested by the LSDV estimates. For the output from the secondary
sector, the speed of convergence suggested by the GMM is marginally
higher, and for the tertiary sector and overall GSDP it is significantly
higher than that obtained from the LSDV estimates. However, speed
of convergence from GMM estimates is higher for the GCS compared
to the same for SCS.
Another indicator of the growth dynamics at the state level is the
estimate of the time required by a state to cover halfway the distance
between its initial income and the steady-state income. As per the GMM
estimates, the general category states would have halfway covered their
steady-state income in 2.57 years compared to 3.82 years for the SCS
(Table 4.12).
Table 4.12 Speed of convergence during 2001–12
GMM LSDV
Time to cover Time to cover

halfway of halfway of
Steady-state Steady-state
Implied ß income Implied ß income
GCS
Primary 0.94 0.73 1.11 0.62
Secondary 0.29 2.38 0.31 2.22
Tertiary – – 0.19 3.63
SDP 0.27 2.57 0.40 1.71
SCS
Primary 0.23 3.07 0.42 1.64
Secondary 0.30 2.34 0.28 2.44
Tertiary 0.25 2.76 0.16 4.39
SDP 0.18 3.82 0.10 6.72
Note: Time refers to the time required to cover halfway of Steady-state income.
(–) Indicates the absence of convergence in the concerned sector.
4.5 Conclusion
Growth in the post-2000 period has been faster compared to the 1990s.
Growth, however, has to be inclusive since the welfare of the people is
the prime consideration for attaining higher levels of growth. Higher
growth is vouched for because it enlarges the scope for improving the
welfare of the people. This chapter focused on the distributional dimen-
sion of growth during the 2000–12 period, given its crucial importance in
shaping the inclusive character of growth. The chapter analysed the evolu-
tion of inequality in consumption and income in the post-2000 period.
Consumption-based inequality captured through the official poverty
estimates has shown a sharper decline in the five years between 2004–5
and 2009–10, at about 1.5 percentage points per year which was twice as
fast as the rate of reduction in the previous 11 years, 1993–94 to 2004–5.
However, the official poverty estimates are surrounded with controversy
relating to their methodology and the consequent poverty figures. The
government has recently appointed a task force to study the matter.
The income based inequality was analysed using a host of approaches
such rank analysis, standard measures of inequality, Gini decomposition
and a convergence framework separately for the GCS and the SCS. The rank
analysis suggests fairly stable rankings of PCI for the GCS and the SCS. The
concordance index indicates that there is no mobility of the states falling
under GCS in the post-crisis period. For the SCS, there has been relatively
higher mobility across the states in the first two sub-periods and relatively
less mobility in the post-crisis period. The index of concordance indicates
that among the GCS, the relative income position of the different states
did not differ much over the entire 13-year period. In contrast to the GCS,
there is a fair amount of mobility of ranks for the special category states
when we consider the full 13-year period. The inequality measures for both
GCS and SCS broadly suggest higher growth is accompanied with higher
inequality. Compared to the year 2000, the Gini measure of inequality
did not change for the GCS but deteriorated significantly for the SCS in
2012. During the entire period of study, the tertiary sector contributed
the most to total income inequality, followed by the secondary sector
and primary sector, respectively, for the GCS. However, for the SCS the
tertiary sector contributed the most to total income inequality, followed
by the secondary and primary sectors until the year 2009. However, from
2012 onwards, the secondary sector contributed the most to total income
inequality for the SCS.
Absolute convergence measured through the dispersal of per capita
SDP increased marginally for the GCS and quite significantly for the SCS
in 2012 compared to 2000. We find evidence against Sigma convergence

is more pronounced for the SCS than for the GCS. There is no evidence
for absolute convergence in the case of the GCS or SCS for the GSDP
or output from any of the sub-sectors in the cross-section dimension.
The absolute convergence estimations in the panel dimension do not
suggest convergence in GSDP or in any of the sub-sectors for GCS and
SCS, except for agricultural and primary sector output for the GCS. The
two-way fixed effects model suggest conditional convergence in total
as well as sectoral income for both the general and special category
states during 2000–12 at a 5 per cent level of significance. The results
of LSDV estimates are reassuring from the inequality perspective in the
sense that the dispersion of steady states has declined across the states
in the post-2000 period for the GCS. However, for the SCS, the standard
deviation of fixed effects from the per capita GSDP estimations, which
declined during 2005–8 compared to 2000–4, increased in the 2009–12
period compared to 2005–8. The more efficient GMM estimates indi-
cate convergence for GSDP and also for the primary and the secondary
sectors’ output for the GCS. However, for the SCS the GMM regression
results suggest convergence in GSDP as well as output in all sub-sectors.
The GMM estimates, as opposed to LSDV estimates, indicate substantial
lower speed of convergence of per capita total output for the GCS. The
speed of convergence in GSDP obtained from GMM estimates, however,
is higher than the same derived from the LSDV estimates for the SCS.
Nonetheless, the speed of convergence derived from the GMM estimates
suggests faster conditional convergence for the GCS than SCS.
Annex 4.1 Estimates of absolute convergence behaviour in cross-section and panel dimension
Cross-section dimension
2001–12 GCS SCS

2
Variable Coefficient T-stat Significance Centred R Coefficient T-stat Significance Centred R2
Agriculture −0.019 −1.436 0.171 0.12 −0.026 −1.023 0.332 0.104

Primary −0.011 −1.444 0.169 0.122 −0.011 −0.419 0.684 0.019
Manufacturing −0.004 −0.502 0.622 0.016 0.019 0.375 0.716 0.015
Secondary −0.012 −1.821 0.088 0.181 −0.018 −0.496 0.631 0.026
Tertiary 0.003 0.540 0.596 0.019 −0.007 −0.269 0.793 0.007
SDP 0.002 0.452 0.657 0.013 −0.004 −0.089 0.930 0.000
Panel dimension
Agriculture −0.086 −3.278 0.001 0.05 −0.017 −0.673 0.501 0.003
Primary −0.047 −2.362 0.019 0.026 −0.016 −0.971 0.332 0.007
Manufacturing −0.001 −0.125 0.900 0.000 0.031 0.298 0.765 0.000
Secondary −0.005 −0.753 0.451 0.002 0.004 0.17 0.864 0.000
Tertiary 0.014 3.407 0.007 0.054 0.048 3.683 0.000 0.094
SDP 0.008 1.321 0.187 0.008 0.057 3.021 0.003 0.065
5
Infrastructure and Growth
Apart from natural resources, demographic characteristics and the

political environment, the availability of infrastructure, both social and
physical, plays a crucial role in influencing India’s growth trajectory. The
12th five-year plan accords infrastructure development – especially road
connectivity, schools, health facilities and the availability of electricity –
as a key component of the regionally inclusive development strategy.
The objective of the 12th five-year plan is to secure faster, more inclusive
and sustainable growth. Apart from developing human and institutional
capabilities; the plan lays stress on development of infrastructure which
will act as a general capability enhancer to realize the plan’s objectives.
Notwithstanding the importance attached to infrastructure, there has been
very little attempt to empirically decipher the impact of infrastructure on
growth. The prime reason for the absence of serious empirical work is the
‘data hurdle’. Obtaining reliable and consistent data on the availability of
infrastructure at the state level continues to be a daunting task.
There have been some attempts in the past – by the 10th and the 11th
Finance Commissions – to develop an infrastructure index for the states.
The most recent exercise in constructing an infrastructure index was by
the Working Group on Growth and Development at the Sub-National
Level for the 12th plan. These attempts tried to construct an infrastruc-
ture index for the states at a certain point in time. For instance, the 11th
Finance Commission constructed the infrastructure index for the fiscal
year 1999–2000, and the Working Group for the 12th plan developed
the index for the fiscal year 2008–9. The infrastructure indices available
at a specific point in time help to compare infrastructure development
across states. However, as the methodologies differed across studies, it
became difficult to assess the progress in infrastructure availability in
the states over time. In this context, it would be useful to develop an
112
Infrastructure and Growth 113
infrastructure index encompassing the economic and social dimensions,

which can be compared over time. This would also help to analyse the
relative importance of economic and social infrastructures for growth.
From a different perspective, while infrastructure helps to promote
growth, it could also be the case that higher growth provides the addi-
tional resources to invest in building better infrastructure. Some East
Asian economies have taken a conscious position to invest relatively
higher amounts in infrastructure, which has helped them attain, as well
as sustain, higher levels of growth.
The rest of the chapter is structured as follows: Section 5.1 discusses the
typical characteristics of infrastructure and the changes in the approach
to provision of infrastructure. Some of the recent initiatives of the
government to give a fillip to the availability of infrastructure in recent
times are discussed in Section 5.2. Section 5.3 develops an infrastructure
index for the states. The relative position of states in the GCS and the
SCS categories, in terms of the infrastructure index over the study period,
is discussed in Section 5.4. The infrastructure and growth relationship is
discussed in Section 5.5. Section 6.6 provides concluding observations.
5.1 Approach to provision of infrastructure
From a puritanical perspective, the importance of infrastructure owes

to the fact that it is non-tradable. The non-tradable characteristics of
infrastructure can act as a physical constraint on the growth of the
economy. A road or a bridge cannot be imported from outside, but has
to be provided from within the economy.
For a prolonged part of India’s planning process, the approach to the
creation of infrastructure facilities was guided by the public good charac-
teristics associated with them. The predominant thinking in the 1950s was
that infrastructure projects are characterised by lumpiness of investments,
long gestation periods, externality characteristics associated with the
public good, high risks, low returns and non-tradability. Generally, infra-
structure projects involve huge financial commitments and long gestation
periods. Moreover, infrastructure projects are saddled with a host of risks,
such as construction, operations, market, interest rate, foreign exchange,
payment, regulatory and political risks (Ahluwalia, 1997).
It was felt that the risk-mitigation arrangements were inadequate to
encourage private-sector participation in the provision of infrastruc-
ture. These characteristics created a perception that viewed infrastruc-
ture as a public monopoly. There was hardly any effort to involve the
private sector in the provision of infrastructure, as they were seen to
lack the necessary resources and capabilities. Moreover, it was thought

that the private sector may not be interested in infrastructure projects,
as it was thought impossible to price infrastructural facilities, given
their public-good character, especially non-rival and non-exclusive in
consumption. Further, as the financial system was relatively underde-
veloped at the beginning of the planning process, the natural choice for
their provision fell in the realm of government.
Though infrastructure facilities had expanded in the four decades of
state-led planning, they were inadequate to keep pace with the require-
ments. Inefficiencies in execution of infrastructure projects were also
glaring. For instance, cost overruns in infrastructure projects with
respect to the original approved cost, amounted to 62 per cent in March
early 1991, and time overruns in terms of percentage of projects running
behind their original schedule also amounted to 62 per cent that year.
Two factors tilted the balance towards the private sector in providing
infrastructure in the 1990s. The first was the government’s worsening
fiscal position, and the second was the changing perception about infra-
structure – that it can be priced. This change in paradigm forced Indian
policy makers to look for alternative modes of financing infrastructure.
The major initiative on the policy front can be traced back to the India
Infrastructure Report prepared under the chairmanship of Dr. Rakesh
Mohan in 1996. The committee projected Rs. 7,500 bn/U.S. $215 bn as the
required infrastructure investment in the five years, 2001–2 to 2005–6. The
report discusses the concessionaire approach to encouraging the private
sector into infrastructure provisioning through institutional mechanisms
such as Build Own Operate (BOO), Build Own Transfer (BOT) and Build
Own Lease Transfer (BOLT). The Rakesh Mohan Committee dealt at length
with the various risks associated with infrastructure projects and recom-
mended the Structured Financing option to tackle these risks. The essen-
tial element in the Structured Financing option is that the investments in
a project are directly linked to its revenue-generating capacity. This is in
sharp contrast to the relative neglect of generation of revenue and profit
streams as a significant objective tied to the creation of a specific infra-
structure asset when the provisioning of it remained largely a government
affair.
Until the 7th plan there was no provision for private-sector involvement
in infrastructure investment. The 8th plan recognized, for the first time,
that the private sector could play a supplemental role in the provision of
infrastructure. The 9th and 10th five-year plans acknowledged that the
public sector domination in provision of infrastructure should give way to
the increasing role of the private sector. The 11th five-year plan accorded a
still-increasing role to the private sector. It envisaged increasing the private

sector share in total infrastructure investment from 20 per cent at the end
of the 10th plan to 30 per cent in the 11th plan. The actual investments in
infrastructure during the last two years of the 10th plan were higher than
plan estimates. As a result, the total investment in infrastructure during
the 10th plan was Rs. 9,19,225 crore, that is, 5.48 per cent higher than
the earlier estimates of Rs. 8,71,445 crore. This increase was mainly due to
higher investment by the private sector, at Rs. 2,25,220 crore as against an
anticipated Rs 1,72,188 crore. This implies that the realized private sector
investment in infrastructure during the 10th plan was 24.50 per cent of
the total investment, as against just below the 20 per cent anticipated
earlier. This increase was largely due to a higher investment realized in oil
and gas pipelines, electricity, irrigation, ports, storage and airports during
the 10th plan period.
The 11th plan emphasized the importance of investment in infrastruc-
ture for achieving a sustainable and inclusive growth of 9 to 10 per cent
in GDP over the next decade. In this context, it envisaged an increase in
investment in physical infrastructure from the level of about 5 per cent
of GDP during the 10th plan to about 9 per cent of GDP by 2011–12 (the
terminal year of the 11th plan). There has been an increase in investment
in infrastructure as a proportion of GDP by about 2.40 percentage points
in the 11th five-year plan compared to the 10th plan. From the terminal
year of the 10th plan to the terminal year of the 11th plan, this increase
would be 2.66 percentage points of GDP. Further, about two-thirds of this
increased investment would be on account of the private sector.
Seen from a slightly different perspective, the share of private sector
investment, at 24.5 per cent of the total infrastructure investment in the
country in the 10th five-year plan, is expected to increase to slightly over
36 per cent in the 11th five-year plan. The 12th five-year plan projects an
investment in the infrastructure to be U.S.$1 trillion during 2012–13 and
2016–17, which is almost eight times the investment in the terminal year
of the 11th five-year plan. These are the projections at constant 2006–7
prices. In nominal terms, based on expectedinflation of 5 per cent, invest-
ment in infrastructure would amount to Rs. 65 Lakh Crs. during the 12th
five-year plan. The private sector is estimated to contribute 50 per cent
of this investment. Thus, while budgetary sources provide Rs. 32.5 Lakh
Crs. of the needed investment, the rest needs to be met through debt and
equity. The Working Sub Group on Infrastructure for the 12th five-year
plan projected funding by various sources amounts to Rs. 17.89 Lakh Crs.,
leaving a funding gap of around Rs. 14.60 Lakh Crs. The Working Sub
Group has asserted that various policy and regulatory recommendations,
such as capital-raising for the public sector banks and public sector NBFCs
and the relaxation of regulations/prudential norms for insurance compa-
nies, will enhance the non-budgetary funds available for infrastructure
sector to Rs 26.61 Lakh Crs. Some of the specific measures have been
quantified and are estimated at Rs. 8.72 Lakh Crs. Implementing these
measures would reduce the funding gap to Rs. 5.89 Lakh Crs. Thus, a
greater flow of funds into the infrastructure sector is contingent upon,
amongst other things, the development of the bond market in India.
5.2 Recent initiatives for infrastructure push
India’s experience with involving the private sector in the provision of

infrastructure through the PPP projects has been quite successful. As of
early 2012, 390 PPP projects had been approved, involving an invest-
ment of Rs. 30,5010 crores. India has achieved sufficient administra-
tive acumen, conceptual clarity and capacity in implementing PPPs. The
World Bank observed that India stood second only to Brazil in terms of
investments through PPP during 1990–2010, and India emerged as the
largest PPP market in the world in 2010. An Asian Development Bank
report stated that India stood in the same league as developed economies
like South Korea and Japan on implementation of PPP projects, and the
Model Concession Agreements prepared in India and used in our PPP
projects have also been commended (12th plan document). The PPP
mode helped to increase the level of investment in the Infrastructure
Sector from 5.6 per cent (2006–7) to 7.27 per cent (2011–12). Guided by
the success of PPP in augmenting economic infrastructure, the 12th plan
strives to promote PPPs in the provision of social infrastructure. Resorting
to PPPs in the social sector often raises concerns about the commer-
cialisation of services that are normally expected to be provided free or
else be highly subsidised. The 12th plan document acknowledges the
concerns but asserts that they can be addressed by well-drafted conces-
sion agreements, strict monitoring and penalties for non-compliance to
ensure that PPP concessionaires abide by their commitments. Further, the
scope of PPPs should be expanded to People–Public–Private Partnerships
(PPPPs) through peoples’ participation in the design and monitoring of
PPP schemes for greater acceptability
Time and cost overruns associated with infrastructure were a major limi-
tation to providing quality infrastructure services to support growth. The
government set up the Committee on Infrastructure (COI) on August 31
in 2004, under the chairmanship of the prime minister, to initiate policies
for time-bound creation of infrastructure, structuring of PPPs to ensure
efficient services at competitive costs while safeguarding interests of users

and government and monitor the progress of key infrastructure projects.
The COI was replaced by the Cabinet Committee on Infrastructure (CCI)
in 2009 to give further impetus to initiatives for development of infra-
structure. The CCI (like the COI, chaired by the prime minister) approves
and reviews policies and projects across infrastructure sectors. It considers
and decides on financial, institutional and legal measures required to
enhance investment in infrastructure sectors. Given the complexi-
ties involved in PPP projects, the Public Private Partnership Appraisal
Committee (PPPAC) was constituted under the chairmanship of the secre-
tary of the Department of Economic Affairs in November 2005 to simplify
the appraisal and approval process for PPP projects. PPP proposals are
appraised by the Planning Commission and approved by the PPPAC. The
mandate of PPPAC is to conduct a thorough scrutiny and due diligence in
the formulation, appraisal and approval of PPP projects. It may be difficult
to capture fully the positive externalities associated with infrastructure
projects while structuring PPPs. In view of the positive externalities which
might have gone unaccounted for, the government in 2006 introduced a
viability gap funding (VGF) scheme to enhance the financial viability of
competitively bid infrastructure projects. As per the VGF scheme, grant
assistance of up to 20 per cent of capital cost is provided by the central
government to PPP projects undertaken by any central ministry, state
government, statutory entity or local body. An additional grant of up to
20 per cent of project costs can be provided by the sponsoring ministry,
state government or project authority. An institutional framework in the
form of an inter-ministerial ‘empowered committee’ was also established
to appraise and approve projects availing themselves of the VGF grant.
One of the prime reasons for the drop in GDP growth in 2011–12 to 6.5
per cent from 8.5 per cent in 2010–11 is the fall in the investment rate
from 30.4 per cent to 29.5 per cent during that period. As such, the 12th
plan has rightly emphasised reversing the observed deceleration in growth
by reviving investment as quickly as possible. Investment, especially in
infrastructure, has faced a number of road blocks at the implementation
stage in recent times. Land acquisition and environmental clearance have
emerged as the biggest challenges for commissioning infrastructure projects
in recent times. Many infrastructure projects become held up because of
objections from one ministry or another. Taking cognizance of the need for
inter-ministerial coordination to get the necessary clearances, the govern-
ment has recently set up the Cabinet Committee on Investment (CCI),
which will seek inter-ministerial cooperation and coordination to fast-track
clearances for infrastructure and manufacturing projects over 10,000 crores.
The CCI is a diluted version of the proposed National Investment Board

(NIB), with powers to take decisions regarding specific approval/clearance
for an unduly delayed project, on behalf of the concerned ministry in case
of its failure to take decisions within a stipulated time frame. In the NDC
meeting to approve the 12th five-year plan, the finance minister mooted
the idea of a NIB under the chairmanship of the prime minister. The NIB
was supposed to be a one-stop solution for getting the various clearances
that an infrastructure project needed to kick-start it. The overriding power
of NIB was strongly opposed by the Environment Ministry, and the govern-
ment instead set up the CCI. Formation of the CCI can be seen as an initia-
tive to redesign governmental decision making.
While banks have been the major financiers of infrastructure projects,
beyond a point it creates ALM problems for banks. Besides, individual
banks have exposure limits to infrastructure financing to avoid concen-
tration risk. Development of a vibrant corporate debt market as an alter-
native and additional source to bank financing in this context assumes
importance. In an attempt to accelerate and enhance flow of long term
debt for funding of infrastructure, the Union Budget 2011–12 proposed
setting up of the Infrastructure Debt Fund (IDF). The first IDF was
launched in March 2012.
Apart from contributing to output in the current period, higher
spending on infrastructure supports production of goods and services in
the future. Infrastructure is a basic prerequisite in the production process.
Given the centrality of infrastructure to the production process, it is not
uncommon to come across demand for classifying loans to infrastruc-
ture as a priority sector lending for banks. At present, there is an indirect
connection between bank lending to infrastructure and priority sector
lending. The 1995–6 budget allowed banks falling short of their priority
sector lending requirement to subscribe to the RIDF bonds for the short-
fall amount, which are used to finance rural infrastructure.
5.3 Infrastructure index
Though development of economic infrastructure to promote growth

received a much attention beginning with the 2nd five-year plan in 1956,
there was hardly any effort to capture the progress made in the provision
of infrastructure facilities. The 10th Finance Commission for the first time
wanted to compensate states with smaller endowments of infrastructure.
For this purpose it had commissioned a study to bring out inter-state differ-
entials in infrastructure. The study conducted by Krishna and colleagues
developed an index of infrastructure reflecting the relative achievement of
a state in providing economic and social infrastructure to its citizens. This
study considered three broad categories of infrastructure, viz, economic,

social and administrative. The 10th Finance Commission put a 5 per cent
weight to the infrastructure facilities in the states while recommending
devolution of funds to the states. The weight of the infrastructure criterion
was increased to 7.5 per cent by the 11th Finance Commission.
The incorporation of infrastructure as a criterion for unconditional
general-purpose grants, however, has been criticized, as it can lead to
moral hazard. Sen and Trebesch(2004) argue that by including infra-
structure as a criterion for devolution of funds, states with low levels of
infrastructure receive higher transfers, which may provide incentives to
states to not to invest and maintain infrastructure facilities. They have
argued that instead of a general-purpose grant, it would be better to
use conditional specific grants which are targeted and can be properly
regulated to avoid moral hazard. Further, they argue to use infrastruc-
ture needs of the states as assessed on the basis of school-aged children
and elderly people rather than infrastructure outcomes as the crite-
rion while allocating funds to states. The 12th Finance Commission
dropped the use of infrastructure as a criterion for fund devolution to
states.
Apart from the government initiatives, there has been some attempt by
some private agencies to construct an infrastructure index at the state level
(Table 5.1). Prominent amongst the private initiatives are the attempts by
CMIE and India Today. While the CMIE index is restricted to 15 states, the
India Today index is based on only economic infrastructure and ignores
the social infrastructure. Recognizing the need to develop an infrastructure
index, the National Statistical Commission recommended the Ministry
of Statistics and Programme Implementation (MOSPI) to constitute an
expert group to develop a suitable methodology. The MOSPI attempt also
concentrates on the economic infrastructure only. The working group for
the 12th plan also considers only the economic infrastructure.
Infrastructure index for Indian states

Methodology
Infrastructure has a broad connotation, including both economic and
social dimensions. Here, we have considered the three most basic and
traditional indicators of economic infrastructure – pani (water), bijli (elec-
tricity) and sadak (road) – reflecting the concerns of the common man
in colloquial terms. The social dimension of infrastructure is captured
through indicators of health and education.
We consider the following indicators to proxy for availability of water,
electricity and road in the economic space and status of health and
education in the social space.
Table 5.1 Infrastructure index – alternate methodologies
Source Indicators of infrastructure Methodology used
10th Finance Considered three broad categories of Eigenvector-based weights were used to compute sectoral
Commission (1995) infrastructure: indices. The sectoral indices were aggregated into an aggregate
and 11th Finance Economic index of infrastructure by assigning weights for the sectoral
Commission (2000) 1 Agriculture values in proportion to the correlation of the sectoral variable
2 Banking with the SDP index; 18 major states were covered in the study
3 Electricity for the 10th Finance Commission and extended to 25 states in
4 Transport the study for the 11th Finance Commission.
5 Communications
6 Social
7 Education
8 Health
9 Administrative
10 Civil Administration
CMIE (2000) 1 Transport Facilities Each of these seven major sectors was assigned a weight
2 Energy in keeping with its importance and contribution towards
3 Irrigation economic development. Using the above indicators and
4 Banking Facilities weights, a composite development index was prepared for 15
5 Communication Facilities major states of India.
6 Education Facilities
7 Health Facilities.
India Today (2003) 1 Percentage of homes with electricity Weights are obtained using principal component analysis (PCA).
2 Percentage of villages connected with pucca This index is available beginning with the year 2003 and latest
roads for the year 2010 for the 30 states.
3 Per capita road length
4 Bank branches
5 LPG connections
6 Post-offices
7 Telephones.
MOSPI as per the 1. Length of railway tracks First, the ratio of the numerical value of an infrastructure
recommendations by 2. Length of roads of appropriate quality facility in year to its numerical value in the base year is
the National Statistical3. Length of runaways computed. Second,
Commission (2001) 4. Number of berths at ports weights for a particular infrastructure facility are assigned on
5. Number of telephone connections the basis of the value of capital stock in that infrastructure
6. Transmission of electricity: length of cables facility as a ratio of capital stock in all the seven infrastructure
7. Generation of electricity. facilities considered.
The NSC noted that valuation of capital stock of the different
infrastructure facilities may not be available but should
be compiled for the purpose of the computation of the
infrastructure index.
Working Group Infrastructure index is computed for four Scenario-1
on Growth and different scenarios for six broad categories, The indicators are assigned a weight equal to the share of the
Development at the viz, Agriculture, Banking, Communication, respective sectors in the all-India GSDP at current prices.
Sub-National Level for Electricity, Roadways and Railways. Twelve Scenario 2:
the 12th plan (2012) indicators were used under these six broad It was decided that equal weights would be assigned to each of
categories to compute the index. The the 12 indicators irrespective of the broad category.
scenarios differ in the manner of their Scenario 3:
allocation of weights to the indicators in each The broad category weights assigned in this scenario are same as
broad category and also in the weights put to the weights assigned by the Finance Commission for the year
the broad categories. 1999–2000. However, the indicators within the broad category
are assigned equal weights.
Scenario 4:
For a broad category with more than one indicator such
as communication, electricity and transport, weights for
indicators are computed through PCA within the category to
get a single index.
Finally, PCA technique was applied across the 5 indices to get
weights for the five broad categories.
This index has been computed for 21 states for the year
2008–9.
Water – Gross irrigated area as a proportion of gross area under

cultivation.
Electricity – Per capita electricity consumption.
Road – Surfaced road length as a percentage of total road length.
Health – Infant mortality rate (IMR) being a negative indicator, we
consider the survival rate of infants per 1,000 births. The survival index
is a residual index derived from the IMR.
Education – Literacy rate; progress in education is captured through
the literacy rate.
As literacy rates in the states are available on a decadal basis, the
annual literacy rate in the states is derived by using exponential growth
between the time periods for which actual data is available.
For each infrastructure indicator, we compute the relevant component
index along lines of computation of HDI. Specifically, the index for a
particular state in a given year is computed using the following formula:
Component Index = (actual−minimum)/(maximum−minimum)
Once the component indices are obtained, the next important task is
to assign appropriate weights. There are a number of alternatives avail-
able, including the statistical methods of principal component analysis or
data envelopment analysis or a priori weights decided by the researcher.
We have assigned weights based on the structure of economic activity.
In this context, we have considered the relative importance of different
sectors in the state’s total output.
We assign the share of primary, secondary and tertiary sector in a
state’s domestic product (SDP) in a particular year to the irrigation, elec-
tricity and road sub-indices, respectively. This gives us the economic
infrastructure index.
For deriving the social infrastructure index, we assign equal weights to
both the education and the survival index.
The overall infrastructure index is obtained by giving equal weight to
economic and social infrastructures. This index is constructed for the
period 2000–1 to 2009–10.
To get the qualitative infrastructure index, we tweak the computation of
social infrastructure index by dropping the literacy index and replacing it
with the indicators such as net enrolment ratio and the number of boys
who passed with 60 per cent or more marks at the upper primary level.
After deriving the index for NER and pass percentage, we combine
them, giving equal weight to derive the education index. The education
index and the survival index are combined in equal weight to derive the
Social Quality Infrastructure Index.
As the information on NER and pass percentages are available only
from 2003–4 onwards, we construct the index taking into account the
qualitative dimension from 2003–4 to 2009–10.
5.4 Infrastructure index – Relative position of states
GCS
In 2009–10, the overall infrastructure index, encompassing both social
and economic infrastructure, improved for 11 states – Bihar, Chattisgarh,
Haryana, Jharkhand, Karnatka, Kerala, Maharatsra, Punjab, Tamil Nadu
and West Bengal – compared to their levels in 2000–1. Uttar Pradesh had
the lowest overall infrastructure index in 2000–1. In 2009–10, Odisha
replaced Uttar Pradesh in occupying the bottommost position. Goa,
however, retained its topmost position amongst the GCS in having the
highest level overall infrastructure index.
The infrastructure index

The economic infrastructure index improved for ten states, and the
social infrastructure index improved for six states in 2009–10 compared
to 2000–1. The improvement in both the social and economic
infrastructure space was found for only two states, Jharkhand and
Karnataka.
Gujarat had the highest level of economic infrastructure index in
2000–1, and was replaced by Punjab in 2009–10. Uttar Pradesh had the
lowest economic infrastructure index in 2000–1, but in 2009–10, Odisha
had the lowest level of this index.
Kerala had the highest and Uttar Pradesh the lowest social infrastruc-
ture index in 2000–1, and the positions remain unaltered in 2009–10.
SCS
There was an improvement in the overall infrastructure index for 4
out of the 11 SCS in 2009–10 compared to 2000–1, although six states
improved their economic and social infrastructures index levels in
2009–10 compared to 2000–1. The improvement in overall infrastruc-
ture index levels was guided by an improvement in both economic and
social infrastructures for these four states.
Uttarakhand had the highest overall infrastructure index in 2000–1 and
retained its topmost position in 2009–10. Uttarakhand also had the highest
of economic infrastructure index level in both 2000–1 and 2009–10. Assam
had the lowest overall infrastructure index level as well as in the economic
and social dimensions, both in 2000–1 and 2009–10.
When we consider the qualitative dimension of the social infrastruc-
ture index we find the following changes between 2003–4 and 2009–10
GCS
The social infrastructure index improved for only four states in 2009–10
compared to 2003–4 irrespective of whether or not we consider the
Table 5.2 Infrastructure index – quantitative dimension
2000–1 2000–1 2000–1 2009–10 2009–10 2009–10 2003–4 2003–4 2003–4 2009–10 2009–10 2009–10
State ecoinfin overallin socinfin ecoinfin overallin socinfin ecoinfin overallqin socinfqin ecoinfin overallqin socinfqin
Andhra 0.56 0.43 0.31 0.52 0.38 0.23 0.49 0.51 0.53 0.52 0.50 0.49
Pradesh
Bihar 0.23 0.21 0.18 0.32 0.23 0.13 0.34 0.31 0.28 0.32 0.28 0.24
Chhattisgarh 0.36 0.32 0.29 0.52 0.38 0.24 0.31 0.38 0.45 0.52 0.43 0.33
Goa 0.76 0.80 0.85 0.75 0.82 0.89 0.77 0.74 0.70 0.75 0.70 0.65
Gujarat 0.96 0.70 0.45 0.78 0.61 0.43 0.77 0.63 0.48 0.78 0.55 0.32
Haryana 0.64 0.52 0.39 0.83 0.59 0.35 0.82 0.56 0.29 0.83 0.59 0.35
Jharkhand 0.31 0.28 0.26 0.39 0.32 0.26 0.21 0.27 0.33 0.39 0.36 0.34
Karnataka 0.46 0.45 0.43 0.47 0.45 0.43 0.51 0.54 0.57 0.47 0.49 0.51
Kerala 0.23 0.61 1.00 0.37 0.67 0.97 0.36 0.62 0.89 0.37 0.57 0.77
Maharashtra 0.35 0.45 0.56 0.31 0.45 0.59 0.27 0.48 0.70 0.31 0.49 0.67
Madhya Pradesh 0.51 0.44 0.37 0.53 0.43 0.32 0.48 0.33 0.18 0.53 0.35 0.17
Odisha 0.46 0.32 0.18 0.17 0.17 0.17 0.15 0.14 0.13 0.17 0.10 0.03
Punjab 0.69 0.60 0.50 0.89 0.69 0.49 0.83 0.54 0.25 0.89 0.68 0.48
Rajasthan 0.53 0.38 0.22 0.54 0.34 0.14 0.41 0.40 0.39 0.54 0.43 0.31
Tamil Nadu 0.74 0.65 0.56 0.71 0.68 0.64 0.70 0.72 0.73 0.71 0.75 0.79
Uttar Pradesh 0.12 0.14 0.16 0.45 0.28 0.11 0.34 0.30 0.25 0.45 0.28 0.10
West Bengal 0.41 0.45 0.50 0.29 0.41 0.52 0.46 0.52 0.57 0.29 0.38 0.47
Arunachal Pradesh 0.27 0.28 0.29 0.45 0.38 0.31 0.32 0.36 0.41 0.45 0.50 0.55
Assam 0.01 0.07 0.13 0.00 0.06 0.13 0.02 0.07 0.12 0.00 0.12 0.23
Himachal Pradesh 0.65 0.57 0.49 0.77 0.66 0.54 0.70 0.67 0.64 0.77 0.73 0.69
Jammu & Kashmir 0.63 0.43 0.23 0.60 0.40 0.20 0.64 0.58 0.51 0.60 0.59 0.57
Manipur 0.50 0.53 0.56 0.35 0.51 0.67 0.43 0.60 0.77 0.35 0.53 0.72
Meghalaya 0.55 0.60 0.65 0.64 0.59 0.53 0.66 0.42 0.19 0.64 0.43 0.21
Mizoram 0.43 0.51 0.59 0.39 0.36 0.32 0.44 0.53 0.62 0.39 0.49 0.58
Nagaland 0.30 0.49 0.68 0.31 0.48 0.65 0.35 0.49 0.63 0.31 0.49 0.68
Sikkim 0.66 0.57 0.47 0.68 0.65 0.61 0.74 0.57 0.39 0.68 0.50 0.33
Tripura 0.35 0.46 0.56 0.38 0.57 0.75 0.44 0.47 0.51 0.38 0.48 0.58
Uttarakhand 0.91 0.69 0.46 0.82 0.65 0.48 0.89 0.69 0.49 0.82 0.70 0.57
qualitative dimension. However, the four states which experienced an

improvement while recognizing the qualitative dimension, viz, Haryana,
Jharkhand, Punjab and Tamil Nadu, between 2009–10 and 2003–4, are
different from those states which experienced an improvement in social
infrastructure index without considering the qualitative dimension: viz,
Bihar, Goa, Maharatsra and Tamil Nadu.
When we consider the improvement in overall infrastructure index
which considers the qualitative dimension in 2009–10 compared to
2003–4, we find another four states – Chattisgarh, Maharatsra, Madhya
Pradesh and Rajasthan – in addition to the four states which experi-
enced an improvement in the social infrastructure index in the qualita-
tive dimension.
When we consider the social infrastructure in the qualitative dimen-
sion, Odisha not only had the lowest index value, both in 2003–4
and 2009–10, but also had undergone a decline in the index value. In
contrast, Kerala had the highest value of the index in 2003–4, and in
2009–10 it was replaced by Tamil Nadu.
SCS
All states except Manipur, Mizoram and Sikkim improved their social
infrastructure index with a qualitative connotation in 2009–10
compared to 2003–4. While Himachal Pradesh had the highest value
of the social infrastructure index with a qualitative dimension, Assam
had the lowest index value, in 2003–4. In 2009–1, Manipur occupied
the topmost and Meghalaya the bottommost positions in terms of
this index.
After accounting for the qualitative dimension, as far as the overall
infrastructure index is concerned, we find Uttarakhand had the highest
value of the index and Assam the lowest in 2003–4. In 2009–10, Himachal
Pradesh had taken the highest position while Assam continued at the
bottom most position.
5.5 Infrastructure and growth
The growth and development literature recognizes infrastructure as a

prerequisite for putting the economy into a high growth trajectory and
for sustaining those high growth rates. Aschauer (1989) was the first
mainstream study which reported a high elasticity of GDP to infrastruc-
ture in the order of 0.4 for total public capital and 0.24 for core infra-
structure for the United States. The high impact of infrastructure from the
Table 5.3 Infrastructure index – qualitative dimension
2003–4 2003–4 2003–4 2009–10 2009–10 2009–10 2003–4 2003–4 2003–4 2009–10 2009–10 2009–10
State ecoinfin overallin socinfin ecoinfin overallin socinfin ecoinfin overallqin socinfqin ecoinfin overallqin socinfqin
Andhra 0.49 0.39 0.29 0.52 0.38 0.23 0.49 0.51 0.53 0.52 0.50 0.49
Pradesh
Bihar 0.34 0.24 0.13 0.32 0.23 0.13 0.34 0.31 0.28 0.32 0.28 0.24
Chhattisgarh 0.31 0.32 0.33 0.52 0.38 0.24 0.31 0.38 0.45 0.52 0.43 0.33
Goa 0.77 0.81 0.86 0.75 0.82 0.89 0.77 0.74 0.70 0.75 0.70 0.65
Gujarat 0.77 0.61 0.45 0.78 0.61 0.43 0.77 0.63 0.48 0.78 0.55 0.32
Haryana 0.82 0.59 0.37 0.83 0.59 0.35 0.82 0.56 0.29 0.83 0.59 0.35
Jharkhand 0.21 0.25 0.30 0.39 0.32 0.26 0.21 0.27 0.33 0.39 0.36 0.34
Karnataka 0.51 0.48 0.44 0.47 0.45 0.43 0.51 0.54 0.57 0.47 0.49 0.51
Kerala 0.36 0.68 1.00 0.37 0.67 0.97 0.36 0.62 0.89 0.37 0.57 0.77
Maharashtra 0.27 0.43 0.59 0.31 0.45 0.59 0.27 0.48 0.70 0.31 0.49 0.67
Madhya Pradesh 0.48 0.41 0.34 0.53 0.43 0.32 0.48 0.33 0.18 0.53 0.35 0.17
Odisha 0.15 0.17 0.20 0.17 0.17 0.17 0.15 0.14 0.13 0.17 0.10 0.03
Punjab 0.83 0.67 0.50 0.89 0.69 0.49 0.83 0.54 0.25 0.89 0.68 0.48
Rajasthan 0.41 0.32 0.22 0.54 0.34 0.14 0.41 0.40 0.39 0.54 0.43 0.31
Tamil Nadu 0.70 0.64 0.58 0.71 0.68 0.64 0.70 0.72 0.73 0.71 0.75 0.79
Uttar Pradesh 0.34 0.25 0.16 0.45 0.28 0.11 0.34 0.30 0.25 0.45 0.28 0.10
West Bengal 0.46 0.50 0.53 0.29 0.41 0.52 0.46 0.52 0.57 0.29 0.38 0.47
Assam 0.02 0.07 0.13 0.00 0.06 0.13 0.02 0.07 0.12 0.00 0.12 0.23
Jammu & Kashmir 0.64 0.41 0.18 0.60 0.40 0.20 0.64 0.58 0.51 0.60 0.59 0.57
Manipur 0.43 0.53 0.63 0.35 0.51 0.67 0.43 0.60 0.77 0.35 0.53 0.72
Meghalaya 0.66 0.64 0.62 0.64 0.59 0.53 0.66 0.42 0.19 0.64 0.43 0.21
Mizoram 0.44 0.51 0.58 0.39 0.36 0.32 0.44 0.53 0.62 0.39 0.49 0.58
Nagaland 0.35 0.51 0.67 0.31 0.48 0.65 0.35 0.49 0.63 0.31 0.49 0.68
Sikkim 0.74 0.65 0.56 0.68 0.65 0.61 0.74 0.57 0.39 0.68 0.50 0.33
Tripura 0.44 0.53 0.63 0.38 0.57 0.75 0.44 0.47 0.51 0.38 0.48 0.58
Uttarakhand 0.89 0.69 0.48 0.82 0.65 0.48 0.89 0.69 0.49 0.82 0.70 0.57
Aschauer (1989) study prompted a large amount of subsequent research

(Munnell, 1990, Nadiri and Mamuneas, 1994, Garcia Mila and Mcguire,
1992, Morrison and Schwartz, 1996), which looked at different samples
or refined the techniques used to confirm whether infrastructure has such
large impacts on the economy. While some of these studies have reported
results similar to that of Aschauer (1989), others have reported much lower
elasticities. Subsequent studies (Eberts 1990, Hulten and Schwab, 1991)
at the spatial level for U.S. regions, however, have reported much lower
elasticities of output to infrastructure. A number of studies have exam-
ined the impact of infrastructure on broad macroeconomic aggregates
such as output, growth and productivity, using a variety of data, empirical
methodologies and infrastructure measures. Estache (2006), Romp and de
Hann (2007) and Straub (2007) offer comprehensive surveys of this liter-
ature. The broad finding from the various studies indicates the positive
long-run effect of infrastructure on output, productivity or their growth
rate. Empirical evidence also points out that development of infrastructure
reduces inequality. Calderon and Serven(2002), using a large-panel data
set encompassing over a hundred countries and spanning the years 1960–
2000, observed that the stock of infrastructure not only positively affects
growth, but also has a sobering impact on income inequality.
In the Indian context, empirical estimation of the symbiotic relation
between infrastructure and growth is conspicuous by its absence. The
prime hurdle is the lack of availability of consistent data on infrastructure.
Having developed a consistent infrastructure index for the states during
2001–10, we have tried to assess the impact of infrastructure on growth
using the infrastructure index computed for the states and the growth of
SDP at the state level, using panel data models in this section.
Results
GCS
The plain vanilla OLS model yields very high values of coefficient esti-
mates of the impact of overall infrastructure on SDP. When the economic
and social infrastructures are considered separately, the impact of social
infrastructure on output turns out be much higher than that of economic
infrastructure. The use of a two-way fixed effects model renders overall
infrastructure rather ineffective in influencing output. However, when we
consider the economic and social infrastructures separately, we find the
social infrastructure has a larger impact on SDP than does economic infra-
structure. The more appropriate GMM estimates indicate that when the
overall infrastructure index improves by 1 per cent, the SDP increases by
0.28 per cent. When the economic and social infrastructures are considered
Table 5.4 Impact of infrastructure on growth
Two-way fixed
OLS Two-way fixed effects OLS effects GMM GMM
Variables Model – 1 Model – 2 Model – 3 Model – 4 Model – 5 Model – 6
GCS SCS GCS SCS GCS SCS GCS SCS GCS SCS GCS SCS
C 11.105 10.436 10.198 10.418 11.154 10.428 10.606 10.073

(0.000) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000)
loverallin 0.973 0.209 −0.067 0.188 0.286 0.054
(0.000) (0.000) (0.099) (0.000) (0.000) (0.646)
lecoinfin 0.309 0.139 0.012 0.096 0.183 0.070
(0.016) (0.000) (0.651) (0.122) (0.025) (0.389)
lsocinfin 0.625 0.052 0.329 −0.353 0.370 −0.033
(0.000) (0.000) (0.000) (0.005) (0.026) (0.786)
lpsdp(−1) 1.002 1.471 1.048 1.461
(0.000) (0.000) (0.000) (0.000)
AdJ – R2 0.58 0.22 0.99 0.99 0.647 0.165 0.999 0.999
DW 0.12 0.12 0.82 1.06 0.098 0.133 0.979 0.303
P-Value of 0.385 0.526 0.0755 0.473
Sargan
Test
Where, lecoinfin = Log of economic infrastructure index.

lsocinfin = Log of social infrastructure index.
loverallin- = Log of overall infrastructure index.
lpsdp = Log of per capita SDP.
separately we find the social infrastructure index has large impact of 0.37
on SDP compared to only 0.18 for economic infrastructure.
SCS
The OLS estimates suggest that overall infrastructure has a much smaller
impact on SDP than was the case of GCS. When OLS estimation is performed
by considering economic and social infrastructures separately, we find
unlike the case of GCS, economic infrastructure has large impact in influ-
encing SDP than social infrastructure. The two-way fixed effect estimations
as well the GMM estimates also suggest that for the SCS, economic infra-
structure plays a larger role than social infrastructure in impacting SDP.
Results on causality
We find that the infrastructure index variable is stationary in levels, but
output measured through SDP is stationary only in first differences. As
such, we have considered causality between growth in SDP and growth
in the infrastructure index, both variables being stationary by applying
log likelihood ratio tests. With the log LR test we can comment on
causality in the individual panel members as well as for the panel as a
group, using joint LR tests. As we are using annual data, the causality
Table 5.5 Causality between growth in output and growth in

infrastructure
Causality Lag GCS SCS
Growth in economic infrastructure to 1 yes yes

growth in social infrastructure 2 yes yes
Growth in social infrastructure to growth 1 yes no
in economic infrastructure 2 yes yes
Growth in SDP to growth in economic 1 yes yes
infrastructure 2 yes yes
Growth in economic infrastructure to 1 yes no
growth in SDP 2 yes yes
Growth in SDP to growth in social 1 yes no
Growth in social infrastructure to growth 1 yes no
in SDP 2 yes yes
Growth in SDP to growth in overall 1 yes yes
Growth in overall infrastructure to growth 1 yes no
in SDP 2 yes yes
Note: ‘yes’ refers to the presence of causality, and ‘no’ refers to absence of
causality.
tests were performed with one period lag and two period lags separately
for the GCS and the SCS.
We find bidirectional causality between economic infrastructure
and social infrastructure as well between growth in SDP and growth in
economic, social and overall infrastructure for the GCS as group at both
one lag as well as two lags. Bidirectional causality is also found for the
SCS as a group when two lags are used between economic infrastructure
and social infrastructure as well between growth in SDP and growth in
economic, social and overall infrastructure.
5.6 Conclusion
Provision of infrastructure facilities was the responsibility of govern-

ment in the first four decades of planning, because there was fear of
market failure given the public good characteristics associated with
them. Experience with the public provision of infrastructure led to the
realisation that there can be government failures as well. As such, there
was a conscious attempt to benefit from private-sector expertise through
PPP arrangements in the provision of infrastructure in the post-1990
period. The experience of the last two decades suggests that PPP arrange-
ments have been reasonably successful in augmenting the infrastructure
facilities in the country. According to a report published by the World
Bank, India has been the top recipient of PPP investment since 2006
and accounted for almost half of the investment in new PPP projects
implemented in developing countries in the first half of 2011. However,
PPP projects remained in the shadow of bureaucratic and political inde-
cision in 2010–2012. Government, of late, has woken up to the task by
setting up the Cabinet Committee on Investment for faster clearance
of infrastructure projects. The sooner government gets its act together,
prospects of higher growth can be realised earlier.
Empirical estimates indicate that infrastructure on the whole has a
larger impact on output for the GCS than the SCS. As far as the impact
of different categories of infrastructure on growth is concerned, we find
social infrastructure has a larger influence on growth than does economic
infrastructure for the GCS. However, economic infrastructure influences
output more than social infrastructure does for the SCS. Causality analysis
provides evidence in favour of bidirectional causality between growth in
output and growth in infrastructure for both GCS and the SCS. Thus,
provision of infrastructure and growth has mutually reinforcing impacts
on each other. We have taken up one critical aspect of social infrastruc-
ture, health; for a more detailed discussion see the next chapter.
Annex 5.1 Causality between social and economic infrastructure for general category states
Lag-1 Lag-2
Economic Social Economic Social

to Social to Economic to Social to Economic
Significance Significance Significance Significance

level level level level
State LR test statistic (P-value) LR test statistic (P-value) LR test statistic (P-value) LR test statistic (P-value)
Andhra 6.247 0.012 0.890 0.345 1.249 0.535 1.732 0.421

Pradesh
Bihar 0.036 0.849 3.150 0.076 3.897 0.143 9.017 0.011
Chhattisgarh 2.514 0.113 0.095 0.758 4.106 0.128 0.047 0.977
Goa 0.289 0.591 0.172 0.678 2.681 0.262 15.818 0.000
Gujarat 0.270 0.603 3.463 0.063 3.875 0.144 9.999 0.007
Haryana 0.219 0.640 6.325 0.012 6.365 0.041 7.590 0.022
Jharkhand 10.766 0.001 3.678 0.055 8.911 0.012 16.034 0.000
Karnataka 0.000 0.993 0.003 0.958 4.972 0.083 2.852 0.240
Kerala 0.307 0.580 0.351 0.554 0.607 0.738 11.805 0.003
Maharashtra 0.077 0.782 6.970 0.008 12.880 0.002 16.926 0.000
Madhya 4.229 0.040 1.003 0.317 16.255 0.000 9.859 0.007
Pradesh
Odisha 0.005 0.941 0.019 0.889 14.474 0.001 0.269 0.874
Punjab 0.102 0.749 0.049 0.825 1.798 0.407 2.427 0.297
Rajasthan 0.694 0.405 0.170 0.680 16.253 0.000 4.205 0.122
Tamil Nadu 2.663 0.103 0.401 0.526 15.386 0.000 3.194 0.203
Uttar Pradesh 1.477 0.224 0.198 0.656 1.106 0.575 9.209 0.010
West Bengal 0.809 0.368 11.372 0.001 0.722 0.697 11.976 0.003
Joint LR Test 30.704 0.022 38.309 0.002 115.539 0.000 132.961 0.000
Statistics
Annex 5.2 Causality between social and economic infrastructure for special category states
Lag-1 Lag-2
Economic to Social Social to Economic Economic to Social Social to Economic
Significance Significance Significance

LR test Significance LR test level LR test level LR test level
State statistic level (P-value) statistic (P-value) statistic (P-value) statistic (P-value)
Arunachal 4.418 0.036 3.359 0.067 8.552 0.014 16.659 0.000

Pradesh
Himachal 1.372 0.241 0.296 0.586 6.139 0.046 1.432 0.489
Pradesh
Jammu & 2.206 0.138 0.222 0.637 2.770 0.250 13.290 0.001
Kashmir
Manipur 0.010 0.922 0.023 0.878 0.009 0.995 13.305 0.001
Meghalaya 0.004 0.948 2.166 0.141 3.255 0.196 4.260 0.119
Mizoram 0.000 0.984 1.134 0.287 0.661 0.719 2.812 0.245
Nagaland 2.435 0.119 0.049 0.825 28.220 0.000 1.134 0.567
Sikkim 7.557 0.006 3.797 0.051 9.188 0.010 16.786 0.000
Tripura 0.719 0.396 0.352 0.553 9.007 0.011 5.194 0.074
Uttarakhand 0.730 0.393 0.312 0.576 0.741 0.690 1.613 0.446
URK 0.101 0.751 0.707 0.400 11.901 0.003 0.433 0.805
Joint LR Test 19.552 0.052 12.418 0.333 80.443 0.000 76.917 0.000
Statistics
Annex 5.3 Causality between growth in SDP and growth in economic infrastructure for GCS
Lag-1 Lag-2
Growth in SDP causing Growth in economic Growth in SDP causing Growth in economic
growth in economic infrastructure causing growth in economic infrastructure causing
State infrastructure growth in SDP infrastructure growth in SDP
Andhra 0.450 0.502 0.549 0.459 9.348 0.009 2.394 0.302

Pradesh
Bihar 3.728 0.054 2.051 0.152 13.797 0.001 2.001 0.368
Chhattisgarh 0.015 0.904 0.819 0.365 1.487 0.475 16.056 0.000
Goa 2.566 0.109 2.597 0.107 0.747 0.688 12.680 0.002
Gujarat 5.108 0.024 0.288 0.591 5.080 0.079 13.000 0.002
Haryana 0.912 0.339 2.961 0.085 1.535 0.464 2.898 0.235
Jharkhand 0.044 0.835 0.551 0.458 0.670 0.715 0.694 0.707
Karnataka 0.408 0.523 0.763 0.382 1.383 0.501 0.151 0.927
Kerala 1.676 0.195 0.908 0.341 1.605 0.448 4.055 0.132
Maharashtra 3.966 0.046 0.788 0.375 8.729 0.013 3.917 0.141
Madhya 1.382 0.240 9.373 0.002 0.458 0.795 0.160 0.923
Pradesh
Odisha 9.312 0.002 11.696 0.001 0.733 0.693 3.240 0.198
Punjab 2.451 0.117 0.990 0.320 3.395 0.183 25.285 0.000
Rajasthan 1.136 0.286 8.927 0.003 9.149 0.010 2.678 0.262
Tamil Nadu 1.234 0.267 0.211 0.646 10.231 0.006 0.212 0.899
Uttar Pradesh 0.151 0.698 0.143 0.706 14.619 0.001 1.817 0.403
West Bengal 0.441 0.507 0.005 0.945 22.462 0.000 1.128 0.569
Overall 34.981 0.006 43.620 0.000 105.427 0.000 92.366 0.000
Annex 5.4 Causality between growth in SDP and growth in social infrastructure for GCS
Lag-1 Lag-2
Growth in SDP causing Growth in social Growth in SDP causing Growth in social
growth in social infrastructure causing growth in social infrastructure causing
Andhra 0.263 0.608 0.040 0.841 0.737 0.692 26.427 0.000

Pradesh
Bihar 0.161 0.688 3.708 0.054 31.282 0.000 2.255 0.324
Chhattisgarh 3.781 0.052 1.164 0.281 4.259 0.119 2.865 0.239
Goa 0.000 0.994 0.010 0.920 0.550 0.759 0.002 0.999
Gujarat 6.580 0.010 0.131 0.717 21.381 0.000 0.145 0.930
Haryana 0.014 0.905 1.822 0.177 10.668 0.005 8.290 0.016
Jharkhand 4.290 0.038 0.398 0.528 3.430 0.180 2.335 0.311
Karnataka 0.073 0.787 3.324 0.068 0.817 0.665 3.785 0.151
Kerala 0.042 0.837 4.667 0.031 4.784 0.091 3.883 0.144
Maharashtra 2.335 0.127 0.907 0.341 10.552 0.005 2.344 0.310
Madhya 5.729 0.017 8.253 0.004 1.221 0.543 2.658 0.265
Pradesh
Odisha 2.895 0.089 0.813 0.367 5.767 0.056 2.741 0.254
Punjab 0.277 0.598 0.130 0.718 2.342 0.310 3.272 0.195
Rajasthan 8.898 0.003 4.129 0.042 9.853 0.007 2.070 0.355
Tamil Nadu 0.133 0.715 0.796 0.372 3.116 0.211 5.614 0.060
Uttar Pradesh 0.082 0.774 0.864 0.353 0.275 0.871 30.012 0.000
West Bengal 1.516 0.218 0.025 0.875 1.314 0.518 0.887 0.642
Overall 37.070 0.003 31.182 0.019 112.348 0.000 99.586 0.000
Annex 5.5 Causality between growth in SDP and growth in overall infrastructure for GCS
Lag-1 Lag-2
Growth in SDP causing Growth in overall Growth in SDP causing Growth in overall
growth in overall infrastructure causing growth in overall infrastructure causing
Andhra Pradesh 0.993 0.319 0.464 0.496 7.936 0.019 2.188 0.335
Bihar 4.749 0.029 1.329 0.249 9.645 0.008 1.931 0.381
Chhattisgarh 1.034 0.309 0.193 0.660 2.267 0.322 7.781 0.020
Goa 0.858 0.354 1.184 0.276 1.581 0.454 3.001 0.223
Gujarat 5.699 0.017 0.322 0.570 5.756 0.056 9.103 0.011
Haryana 0.187 0.665 1.553 0.213 3.581 0.167 5.136 0.077
Jharkhand 0.111 0.739 0.549 0.459 7.373 0.025 1.413 0.493
Karnataka 0.310 0.578 1.292 0.256 1.931 0.381 0.595 0.743
Kerala 1.080 0.299 0.839 0.360 8.181 0.017 3.355 0.187
Maharashtra 9.100 0.003 0.932 0.334 11.208 0.004 13.241 0.001
Madhya Pradesh 3.524 0.060 9.545 0.002 0.451 0.798 0.007 0.997
Odisha 8.673 0.003 11.679 0.001 1.259 0.533 1.512 0.470
Punjab 1.049 0.306 1.263 0.261 20.929 0.000 11.495 0.003
Rajasthan 0.371 0.542 11.624 0.001 1.258 0.533 5.686 0.058
Tamil Nadu 0.978 0.323 0.903 0.342 17.885 0.000 0.700 0.705
Uttar Pradesh 0.298 0.585 0.200 0.655 4.871 0.088 2.024 0.364
West Bengal 0.124 0.724 0.001 0.975 18.576 0.000 1.137 0.566
Overall 39.136 0.002 43.872 0.000 124.686 0.000 70.302 0.000
Annex 5.6 Causality between growth in SDP and growth in economic infrastructure for SCS
Lag-1 Lag-2
Growth in SDP causing Growth in economic Growth in SDP causing Growth in economic
growth in economic infrastructure causing growth in economic infrastructure causing
Arunachal 0.372 0.542 0.001 0.969 6.854 0.032 6.157 0.046

Pradesh
Himachal 0.253 0.615 0.004 0.950 1.925 0.382 30.338 0.000
Pradesh
Jammu & 0.630 0.427 0.002 0.963 2.533 0.282 1.028 0.598
Kashmir
Manipur 13.117 0.000 0.733 0.392 14.380 0.001 10.056 0.007
Meghalaya 0.005 0.942 4.196 0.041 5.223 0.073 15.282 0.000
Mizoram 0.001 0.979 0.144 0.704 10.820 0.004 10.044 0.007
Nagaland 2.007 0.157 0.044 0.834 1.676 0.433 3.980 0.137
Sikkim 0.737 0.391 4.323 0.038 19.810 0.000 5.107 0.078
Tripura 5.949 0.015 4.468 0.035 1.625 0.444 3.590 0.166
Uttarakhand 3.753 0.053 0.017 0.898 3.717 0.156 7.266 0.026
Overall 26.823 0.003 13.932 0.176 68.562 0.000 92.848 0.000
Annex 5.7 Causality between growth in SDP and growth in social infrastructure for SCS
Lag-1 Lag-2
Growth in social Growth in SDP causing Growth in social

Growth in SDP causing infrastructure causing growth in social infrastructure causing
State growth in social infrastructure growth in SDP infrastructure growth in SDP
Arunachal 0.366 0.545 0.001 0.972 3.548 0.170 4.484 0.106

Pradesh
Himachal 2.637 0.104 0.279 0.598 11.750 0.003 1.247 0.536
Pradesh
Jammu & 0.012 0.914 0.001 0.972 18.122 0.000 10.275 0.006
Kashmir
Manipur 0.034 0.854 6.030 0.014 9.155 0.010 6.116 0.047
Meghalaya 0.042 0.837 0.070 0.792 17.085 0.000 0.939 0.625
Mizoram 0.015 0.903 0.089 0.766 0.345 0.841 4.302 0.116
Nagaland 1.557 0.212 0.335 0.563 3.593 0.166 13.580 0.001
Sikkim 0.249 0.618 5.650 0.017 1.110 0.574 10.049 0.007
Tripura 0.443 0.506 0.104 0.747 0.314 0.855 0.472 0.790
Uttarakhand 0.129 0.719 0.869 0.351 2.637 0.268 2.071 0.355
Overall 5.484 0.857 13.428 0.201 67.660 0.000 53.535 0.000
Annex 5.8 Causality between growth in SDP and growth in overall infrastructure for SCS
Lag-1 Lag-2
Growth in SDP causing Growth in overall Growth in SDP causing Growth in overall
growth in overall infrastructure causing growth in overall infrastructure causing
Arunachal 1.095 0.295 0.001 0.972 12.481 0.002 4.484 0.106

Pradesh
Himachal 0.017 0.897 0.279 0.598 0.757 0.685 1.247 0.536
Pradesh
Jammu & 0.456 0.500 0.001 0.972 0.813 0.666 10.275 0.006
Kashmir
Manipur 13.476 0.000 6.030 0.014 9.555 0.008 6.116 0.047
Meghalaya 0.035 0.852 0.070 0.792 6.278 0.043 0.939 0.625
Mizoram 0.293 0.588 0.089 0.766 4.038 0.133 4.302 0.116
Nagaland 1.444 0.230 0.335 0.563 0.981 0.612 13.580 0.001
Sikkim 0.676 0.411 5.650 0.017 14.028 0.001 10.049 0.007
Tripura 3.701 0.054 0.104 0.747 0.626 0.731 0.472 0.790
Uttarakhand 3.864 0.049 0.869 0.351 6.959 0.031 2.071 0.355
Overall 25.055 0.005 13.428 0.201 56.516 0.000 53.535 0.000
Annex 5.9 Overall Infrastructure Index – General category states (2001–10)
Economic Social
Irrigation Electricity infrastructure Overall infrastructure Literacy Survival
Year State Road index index index index index index index index
2000–1 ANP 0.61 0.54 0.47 0.56 0.43 0.31 0.31 0.31
2001–2 ANP 0.55 0.38 0.44 0.48 0.39 0.31 0.30 0.32
2002–3 ANP 0.59 0.33 0.38 0.48 0.39 0.31 0.29 0.33
2003–4 ANP 0.60 0.32 0.44 0.49 0.39 0.29 0.27 0.30
2004–5 ANP 0.52 0.34 0.33 0.43 0.36 0.28 0.26 0.31
2005–6 ANP 0.51 0.40 0.34 0.45 0.36 0.27 0.24 0.31
2006–7 ANP 0.51 0.44 0.35 0.46 0.36 0.27 0.23 0.31
2007–8 ANP 0.51 0.42 0.38 0.46 0.36 0.25 0.21 0.30
2008–9 ANP 0.63 0.44 0.38 0.53 0.39 0.25 0.18 0.32
2009–10 ANP 0.62 0.40 0.39 0.52 0.38 0.23 0.16 0.31
2000–1 BIH 0.38 0.10 0.00 0.23 0.21 0.18 0.00 0.36
2001–2 BIH 0.30 0.55 0.00 0.34 0.25 0.17 0.00 0.34
2002–3 BIH 0.34 0.54 0.00 0.37 0.26 0.16 0.00 0.32
2003–4 BIH 0.30 0.55 0.00 0.34 0.24 0.13 0.00 0.27
2004–5 BIH 0.43 0.54 0.00 0.40 0.26 0.12 0.00 0.24
2005–6 BIH 0.44 0.56 0.00 0.41 0.26 0.12 0.00 0.24
2006–7 BIH 0.43 0.58 0.00 0.41 0.27 0.12 0.00 0.24
2007–8 BIH 0.43 0.58 0.00 0.40 0.26 0.12 0.00 0.23
2008–9 BIH 0.31 0.59 0.00 0.33 0.23 0.13 0.00 0.27
2009–10 BIH 0.31 0.58 0.00 0.32 0.23 0.13 0.00 0.27
2000–1 CHHAT 0.66 0.12 0.23 0.36 0.32 0.29 0.40 0.18
2001–2 CHHAT 0.66 0.13 0.35 0.38 0.33 0.29 0.39 0.18
2002–3 CHHAT 0.49 0.12 0.42 0.34 0.31 0.28 0.38 0.18
2003–4 CHHAT 0.48 0.12 0.35 0.31 0.32 0.33 0.37 0.28
2004–5 CHHAT 0.53 0.15 0.29 0.33 0.31 0.28 0.36 0.21
Continued
Annex 5.9 Continued
Economic Social
2005–6 CHHAT 0.54 0.17 0.32 0.35 0.31 0.28 0.35 0.22
2006–7 CHHAT 0.54 0.19 0.42 0.39 0.33 0.28 0.33 0.22
2007–8 CHHAT 0.56 0.19 0.37 0.38 0.32 0.26 0.31 0.22
2008–9 CHHAT 0.65 0.20 0.61 0.51 0.39 0.26 0.29 0.23
2009–10 CHHAT 0.66 0.18 0.67 0.52 0.38 0.24 0.27 0.21
2000–1 GOA 0.72 0.25 0.94 0.76 0.80 0.85 0.80 0.90
2001–2 GOA 0.68 0.14 1.00 0.75 0.80 0.85 0.80 0.91
2002–3 GOA 0.73 0.15 1.00 0.77 0.82 0.86 0.80 0.93
2003–4 GOA 0.73 0.15 1.00 0.77 0.81 0.86 0.80 0.93
2004–5 GOA 0.73 0.16 1.00 0.77 0.83 0.88 0.80 0.97
2005–6 GOA 0.73 0.15 1.00 0.76 0.83 0.90 0.79 1.00
2006–7 GOA 0.73 0.15 1.00 0.77 0.83 0.90 0.79 1.00
2007–8 GOA 0.74 0.16 1.00 0.77 0.83 0.90 0.79 1.00
2008–9 GOA 0.73 0.14 1.00 0.77 0.83 0.89 0.79 1.00
2009–10 GOA 0.71 0.14 1.00 0.75 0.82 0.89 0.79 1.00
2000–1 GUJ 0.97 0.87 1.00 0.96 0.70 0.45 0.50 0.39
2001–2 GUJ 0.96 0.26 0.76 0.74 0.58 0.43 0.51 0.35
2002–3 GUJ 0.96 0.27 0.71 0.74 0.59 0.43 0.51 0.36
2003–4 GUJ 0.96 0.29 0.85 0.77 0.61 0.45 0.51 0.39
2004–5 GUJ 0.96 0.32 0.58 0.70 0.57 0.43 0.51 0.35
2005–6 GUJ 0.97 0.36 0.64 0.72 0.58 0.43 0.51 0.36
2006–7 GUJ 0.96 0.41 0.62 0.73 0.58 0.43 0.51 0.34
2007–8 GUJ 0.96 0.41 0.67 0.75 0.59 0.42 0.51 0.33
2008–9 GUJ 0.99 0.40 0.63 0.76 0.59 0.43 0.52 0.34
2009–10 GUJ 0.98 0.38 0.70 0.78 0.61 0.43 0.52 0.35
2000–1 HAR 1.00 0.19 0.61 0.64 0.52 0.39 0.48 0.31
2001–2 HAR 1.00 0.85 0.48 0.80 0.60 0.40 0.47 0.32
2002–3 HAR 1.00 0.87 0.48 0.80 0.60 0.40 0.47 0.33
2003–4 HAR 1.00 0.84 0.56 0.82 0.59 0.37 0.47 0.27
2004–5 HAR 1.00 0.86 0.41 0.77 0.57 0.36 0.47 0.26
2005–6 HAR 1.00 0.84 0.53 0.82 0.60 0.38 0.46 0.29
2006–7 HAR 1.00 0.86 0.56 0.83 0.60 0.37 0.46 0.29
2007–8 HAR 1.00 0.87 0.58 0.84 0.60 0.36 0.45 0.27
2008–9 HAR 1.00 0.86 0.54 0.84 0.60 0.36 0.44 0.29
2009–10 HAR 1.00 0.88 0.51 0.83 0.59 0.35 0.44 0.27
2000–1 JRK 0.00 0.53 0.43 0.31 0.28 0.26 0.15 0.36
2001–2 JRK 0.04 0.00 0.32 0.11 0.21 0.31 0.15 0.47
2002–3 JRK 0.19 0.00 0.24 0.16 0.23 0.30 0.15 0.44
2003–4 JRK 0.22 0.00 0.34 0.21 0.25 0.30 0.15 0.45
2004–5 JRK 0.52 0.00 0.22 0.26 0.27 0.28 0.15 0.42
2005–6 JRK 0.53 0.00 0.25 0.28 0.28 0.28 0.14 0.42
2006–7 JRK 0.52 0.00 0.28 0.30 0.29 0.27 0.14 0.41
2007–8 JRK 0.54 0.00 0.26 0.30 0.29 0.27 0.14 0.40
2008–9 JRK 0.62 0.00 0.27 0.33 0.30 0.27 0.14 0.41
2009–10 JRK 0.64 0.00 0.35 0.39 0.32 0.26 0.13 0.38
2000–1 KAR 0.71 0.05 0.44 0.46 0.45 0.43 0.45 0.41
2001–2 KAR 0.65 0.18 0.38 0.46 0.45 0.43 0.45 0.42
2002–3 KAR 0.68 0.16 0.37 0.48 0.46 0.44 0.44 0.43
2003–4 KAR 0.68 0.15 0.43 0.51 0.48 0.44 0.44 0.45
2004–5 KAR 0.61 0.18 0.28 0.43 0.43 0.43 0.44 0.42
2005–6 KAR 0.62 0.21 0.34 0.46 0.45 0.44 0.43 0.44
2006–7 KAR 0.56 0.23 0.36 0.44 0.43 0.42 0.43 0.42
2007–8 KAR 0.58 0.23 0.36 0.45 0.43 0.42 0.42 0.42
2008–9 KAR 0.61 0.25 0.35 0.47 0.45 0.44 0.41 0.46
Continued
Annex 5.9 Continued
Economic Social
2009–10 KAR 0.60 0.24 0.36 0.47 0.45 0.43 0.40 0.46
2000–1 KER 0.24 0.08 0.34 0.23 0.61 1.00 1.00 1.00
2001–2 KER 0.16 0.04 0.24 0.15 0.57 1.00 1.00 1.00
2002–3 KER 0.49 0.04 0.21 0.34 0.67 1.00 1.00 1.00
2003–4 KER 0.49 0.05 0.24 0.36 0.68 1.00 1.00 1.00
2004–5 KER 0.50 0.06 0.15 0.34 0.67 1.00 1.00 1.00
2005–6 KER 0.54 0.07 0.18 0.38 0.69 1.00 1.00 1.00
2006–7 KER 0.54 0.09 0.17 0.39 0.70 1.00 1.00 1.00
2007–8 KER 0.54 0.08 0.17 0.40 0.69 0.98 1.00 0.97
2008–9 KER 0.50 0.08 0.16 0.37 0.68 0.99 1.00 0.98
2009–10 KER 0.48 0.07 0.19 0.37 0.67 0.97 1.00 0.94
2000–1 MAH 0.25 0.16 0.62 0.35 0.45 0.56 0.54 0.58
2001–2 MAH 0.16 0.08 0.46 0.24 0.39 0.54 0.54 0.55
2002–3 MAH 0.20 0.09 0.44 0.25 0.40 0.55 0.54 0.57
2003–4 MAH 0.19 0.09 0.50 0.27 0.43 0.59 0.54 0.64
2004–5 MAH 0.33 0.09 0.38 0.32 0.46 0.59 0.54 0.65
2005–6 MAH 0.34 0.10 0.45 0.34 0.47 0.60 0.54 0.66
2006–7 MAH 0.33 0.11 0.44 0.34 0.47 0.59 0.54 0.64
2007–8 MAH 0.33 0.11 0.44 0.34 0.46 0.58 0.54 0.62
2008–9 MAH 0.27 0.11 0.40 0.29 0.44 0.59 0.54 0.64
2009–10 MAH 0.29 0.09 0.42 0.31 0.45 0.59 0.54 0.65
2000–1 MP 0.81 0.19 0.32 0.51 0.44 0.37 0.68 0.06
2001–2 MP 0.79 0.18 0.23 0.46 0.41 0.35 0.68 0.03
2002–3 MP 0.80 0.17 0.21 0.48 0.41 0.35 0.68 0.01
2003–4 MP 0.80 0.22 0.23 0.48 0.41 0.34 0.67 0.00
2004–5 MP 0.82 0.24 0.21 0.50 0.42 0.34 0.67 0.00
2005–6 MP 0.83 0.23 0.26 0.51 0.42 0.33 0.67 0.00
2006–7 MP 0.82 0.27 0.24 0.51 0.42 0.33 0.66 0.00
2007–8 MP 0.83 0.26 0.25 0.52 0.42 0.33 0.66 0.00
2008–9 MP 0.87 0.26 0.22 0.53 0.43 0.33 0.65 0.00
2009–10 MP 0.87 0.26 0.22 0.53 0.43 0.32 0.64 0.00
2000–1 ORI 0.10 1.00 0.36 0.46 0.32 0.18 0.37 0.00
2001–2 ORI 0.00 0.21 0.28 0.14 0.16 0.18 0.37 0.00
2002–3 ORI 0.00 0.13 0.27 0.10 0.14 0.18 0.36 0.00
2003–4 ORI 0.00 0.22 0.32 0.15 0.17 0.20 0.36 0.03
2004–5 ORI 0.00 0.24 0.31 0.16 0.17 0.19 0.36 0.02
2005–6 ORI 0.00 0.27 0.29 0.16 0.17 0.19 0.35 0.02
2006–7 ORI 0.00 0.30 0.29 0.17 0.17 0.18 0.35 0.02
2007–8 ORI 0.00 0.31 0.31 0.18 0.18 0.18 0.34 0.02
2008–9 ORI 0.00 0.29 0.31 0.17 0.18 0.19 0.34 0.04
2009–10 ORI 0.00 0.28 0.35 0.17 0.17 0.17 0.33 0.02
2000–1 PUN 0.91 0.25 0.98 0.69 0.60 0.50 0.52 0.49
2001–2 PUN 0.89 1.00 0.77 0.90 0.70 0.49 0.51 0.47
2002–3 PUN 0.80 1.00 0.74 0.85 0.67 0.49 0.51 0.47
2003–4 PUN 0.69 1.00 0.84 0.83 0.67 0.50 0.50 0.51
2004–5 PUN 0.88 1.00 0.55 0.84 0.67 0.51 0.49 0.52
2005–6 PUN 0.87 1.00 0.72 0.87 0.68 0.50 0.49 0.51
2006–7 PUN 0.87 1.00 0.71 0.86 0.67 0.48 0.48 0.49
2007–8 PUN 0.87 1.00 0.73 0.86 0.67 0.48 0.47 0.48
2008–9 PUN 0.99 1.00 0.67 0.89 0.69 0.49 0.46 0.52
2009–10 PUN 0.98 1.00 0.66 0.89 0.69 0.49 0.44 0.54
2000–1 RAJ 0.64 0.52 0.36 0.53 0.38 0.22 0.31 0.14
2001–2 RAJ 0.56 0.25 0.24 0.39 0.30 0.21 0.29 0.12
2002–3 RAJ 0.63 0.34 0.22 0.44 0.32 0.20 0.28 0.11
Continued
Annex 5.9 Continued
Economic Social
2003–4 RAJ 0.65 0.22 0.24 0.41 0.32 0.22 0.27 0.18
2004–5 RAJ 0.67 0.27 0.24 0.44 0.31 0.19 0.25 0.13
2005–6 RAJ 0.69 0.30 0.26 0.46 0.32 0.18 0.24 0.12
2006–7 RAJ 0.71 0.32 0.25 0.47 0.32 0.17 0.22 0.12
2007–8 RAJ 0.73 0.31 0.29 0.49 0.33 0.16 0.19 0.12
2008–9 RAJ 0.82 0.28 0.30 0.54 0.35 0.16 0.17 0.14
2009–10 RAJ 0.82 0.26 0.29 0.54 0.34 0.14 0.14 0.13
2000–1 TN 0.78 0.69 0.68 0.74 0.65 0.56 0.60 0.53
2001–2 TN 0.75 0.51 0.57 0.66 0.62 0.58 0.60 0.56
2002–3 TN 0.80 0.46 0.54 0.68 0.63 0.58 0.60 0.56
2003–4 TN 0.80 0.42 0.62 0.70 0.64 0.58 0.59 0.57
2004–5 TN 0.81 0.49 0.40 0.65 0.63 0.61 0.59 0.63
2005–6 TN 0.84 0.53 0.47 0.69 0.65 0.61 0.59 0.63
2006–7 TN 0.84 0.54 0.49 0.70 0.65 0.60 0.58 0.63
2007–8 TN 0.85 0.53 0.50 0.71 0.66 0.61 0.57 0.65
2008–9 TN 0.87 0.55 0.48 0.73 0.68 0.63 0.57 0.70
2009–10 TN 0.86 0.54 0.47 0.71 0.68 0.64 0.56 0.73
2000–1 UP 0.20 0.00 0.15 0.12 0.14 0.16 0.21 0.10
2001–2 UP 0.14 0.71 0.15 0.34 0.24 0.15 0.21 0.09
2002–3 UP 0.34 0.72 0.13 0.42 0.29 0.15 0.21 0.10
2003–4 UP 0.17 0.72 0.14 0.34 0.25 0.16 0.21 0.10
2004–5 UP 0.40 0.74 0.11 0.44 0.28 0.13 0.21 0.05
2005–6 UP 0.43 0.74 0.12 0.45 0.29 0.13 0.21 0.05
2006–7 UP 0.41 0.75 0.12 0.44 0.28 0.13 0.21 0.05
2007–8 UP 0.44 0.75 0.12 0.45 0.29 0.13 0.21 0.05
2008–9 UP 0.47 0.77 0.12 0.47 0.30 0.14 0.20 0.07
2009–10 UP 0.47 0.75 0.11 0.45 0.28 0.11 0.20 0.02
2000–1 WEST 0.50 0.38 0.19 0.41 0.45 0.50 0.49 0.50
BENGAL
2001–2 WEST 0.45 0.52 0.18 0.42 0.46 0.49 0.49 0.49
BENGAL
2002–3 WEST 0.53 0.52 0.16 0.46 0.48 0.50 0.49 0.51
BENGAL
2003–4 WEST 0.54 0.52 0.19 0.46 0.50 0.53 0.49 0.58
BENGAL
2004–5 WEST 0.07 0.53 0.16 0.21 0.38 0.55 0.48 0.61
BENGAL
2005–6 WEST 0.09 0.55 0.16 0.21 0.38 0.54 0.48 0.61
BENGAL
2006–7 WEST 0.08 0.55 0.15 0.20 0.37 0.53 0.47 0.59
BENGAL
2007–8 WEST 0.11 0.55 0.16 0.22 0.37 0.52 0.47 0.58
BENGAL
2008–9 WEST 0.24 0.55 0.16 0.29 0.41 0.53 0.46 0.61
BENGAL
2009–10 WEST 0.24 0.54 0.20 0.29 0.41 0.52 0.45 0.60
BENGAL
Annex 5.10 Overall Infrastructure Index – special category states (2001–10)
Economic Social
Road Irrigation Electricity infrastructure Overall infrastructure Literacy Survival
Year State index index index index index index index index
2000–1 ARP 0.26 0.34 0.05 0.27 0.28 0.29 0.00 0.57
2001–2 ARP 0.27 0.33 0.03 0.24 0.27 0.29 0.00 0.59
2002–3 ARP 0.39 0.31 0.03 0.29 0.31 0.32 0.00 0.65
2003–4 ARP 0.39 0.35 0.12 0.32 0.29 0.27 0.00 0.54
2004–5 ARP 0.65 0.37 0.26 0.43 0.36 0.28 0.00 0.56
2005–6 ARP 0.69 0.36 0.21 0.43 0.34 0.24 0.00 0.48
2006–7 ARP 0.69 0.37 0.19 0.43 0.35 0.27 0.00 0.54
2007–8 ARP 0.66 0.38 0.34 0.46 0.39 0.32 0.00 0.64
2008–9 ARP 0.69 0.32 0.30 0.44 0.38 0.32 0.00 0.64
2009–10 ARP 0.69 0.34 0.23 0.45 0.38 0.31 0.00 0.61
2000–1 ASM 0.00 0.00 0.11 0.01 0.07 0.13 0.26 0.00
2001–2 ASM 0.00 0.00 0.12 0.02 0.07 0.13 0.26 0.00
2002–3 ASM 0.00 0.00 0.12 0.02 0.08 0.13 0.26 0.00
2003–4 ASM 0.00 0.00 0.10 0.02 0.07 0.13 0.26 0.00
2004–5 ASM 0.00 0.00 0.00 0.00 0.06 0.13 0.26 0.00
2005–6 ASM 0.00 0.00 0.00 0.00 0.06 0.13 0.26 0.00
2006–7 ASM 0.00 0.00 0.02 0.00 0.07 0.13 0.26 0.00
2007–8 ASM 0.00 0.00 0.00 0.00 0.06 0.13 0.26 0.00
2008–9 ASM 0.00 0.00 0.00 0.00 0.06 0.13 0.26 0.00
2009–10 ASM 0.00 0.00 0.00 0.00 0.06 0.13 0.25 0.00
2000–1 HP 0.66 0.37 0.84 0.65 0.57 0.49 0.64 0.33
2001–2 HP 0.68 0.37 1.00 0.72 0.60 0.48 0.65 0.32
2002–3 HP 0.60 0.39 1.00 0.70 0.60 0.50 0.65 0.35
2003–4 HP 0.64 0.36 1.00 0.70 0.59 0.47 0.65 0.29
2004–5 HP 1.00 0.37 0.81 0.77 0.63 0.50 0.66 0.35
2005–6 HP 1.00 0.39 1.00 0.85 0.66 0.48 0.66 0.30
2006–7 HP 0.65 0.38 1.00 0.73 0.62 0.51 0.66 0.35
2007–8 HP 0.65 0.38 1.00 0.73 0.63 0.53 0.67 0.40
2008–9 HP 0.69 0.32 1.00 0.74 0.63 0.51 0.67 0.36
2009–10 HP 0.72 0.34 1.00 0.77 0.66 0.54 0.68 0.41
2000–1 JK 0.44 0.91 0.66 0.63 0.43 0.23 0.03 0.43
2001–2 JK 0.45 0.91 0.69 0.65 0.45 0.24 0.04 0.45
2002–3 JK 0.46 0.91 0.71 0.65 0.45 0.25 0.04 0.45
2003–4 JK 0.45 0.89 0.69 0.64 0.41 0.18 0.04 0.33
2004–5 JK 0.45 0.92 0.54 0.61 0.40 0.19 0.05 0.33
2005–6 JK 0.47 0.91 0.91 0.71 0.43 0.16 0.05 0.27
2006–7 JK 0.46 0.88 0.84 0.68 0.42 0.17 0.05 0.28
2007–8 JK 0.47 0.86 0.78 0.65 0.42 0.18 0.06 0.30
2008–9 JK 0.44 0.84 0.85 0.65 0.43 0.21 0.06 0.36
2009–10 JK 0.48 0.85 0.64 0.60 0.40 0.20 0.07 0.34
2000–1 MAN 0.87 0.44 0.00 0.50 0.53 0.56 0.24 0.89
2001–2 MAN 0.87 0.36 0.04 0.50 0.56 0.62 0.25 1.00
2002–3 MAN 0.84 0.53 0.03 0.51 0.57 0.63 0.25 1.00
2003–4 MAN 0.84 0.35 0.01 0.43 0.53 0.63 0.26 1.00
2004–5 MAN 0.74 0.46 0.12 0.44 0.54 0.64 0.27 1.00
2005–6 MAN 0.75 0.46 0.07 0.43 0.54 0.64 0.28 1.00
2006–7 MAN 0.74 0.45 0.05 0.42 0.53 0.65 0.29 1.00
2007–8 MAN 0.61 0.42 0.04 0.36 0.51 0.65 0.30 1.00
2008–9 MAN 0.62 0.36 0.05 0.36 0.51 0.66 0.32 1.00
2009–10 MAN 0.58 0.39 0.03 0.35 0.51 0.67 0.33 1.00
2000–1 MEG 0.69 0.46 0.31 0.55 0.60 0.65 1.00 0.30
2001–2 MEG 0.68 0.58 0.52 0.62 0.60 0.58 1.00 0.16
2002–3 MEG 0.67 0.56 0.67 0.63 0.62 0.60 1.00 0.20
Continued
Annex 5.10 Continued
Economic Social
Road Irrigation Electricity infrastructure Overall infrastructure Literacy Survival
Year State index index index index index index index index
2003–4 MEG 0.65 0.64 0.70 0.66 0.64 0.62 1.00 0.23
2004–5 MEG 0.67 0.59 0.44 0.60 0.64 0.67 1.00 0.35
2005–6 MEG 0.57 0.51 0.58 0.56 0.59 0.63 1.00 0.25
2006–7 MEG 1.00 0.61 0.54 0.80 0.69 0.59 1.00 0.19
2007–8 MEG 1.00 0.51 0.57 0.77 0.67 0.56 1.00 0.12
2008–9 MEG 0.92 0.35 0.56 0.69 0.61 0.52 1.00 0.04
2009–10 MEG 0.87 0.38 0.40 0.64 0.59 0.53 1.00 0.07
2000–1 MIZ 0.54 0.29 0.22 0.43 0.51 0.59 0.27 0.90
2001–2 MIZ 0.55 0.37 0.26 0.45 0.54 0.63 0.27 1.00
2002–3 MIZ 0.54 0.36 0.28 0.45 0.54 0.63 0.26 1.00
2003–4 MIZ 0.54 0.35 0.20 0.44 0.51 0.58 0.25 0.90
2004–5 MIZ 0.51 0.38 0.34 0.45 0.50 0.56 0.24 0.87
2005–6 MIZ 0.53 0.38 0.13 0.42 0.45 0.49 0.23 0.75
2006–7 MIZ 0.54 0.20 0.00 0.36 0.43 0.51 0.21 0.80
2007–8 MIZ 0.53 0.16 0.21 0.38 0.38 0.37 0.20 0.54
2008–9 MIZ 0.56 0.11 0.22 0.39 0.38 0.37 0.19 0.56
2009–10 MIZ 0.60 0.06 0.15 0.39 0.36 0.32 0.17 0.48
2000–1 NAG 0.25 0.47 0.08 0.30 0.49 0.68 0.36 1.00
2001–2 NAG 0.26 0.42 0.00 0.28 0.47 0.66 0.37 0.95
2002–3 NAG 0.29 0.44 0.00 0.30 0.49 0.68 0.38 0.98
2003–4 NAG 0.30 0.59 0.00 0.35 0.51 0.67 0.39 0.94
2004–5 NAG 0.40 0.57 0.02 0.41 0.54 0.66 0.41 0.91
2005–6 NAG 0.44 0.57 0.01 0.43 0.53 0.63 0.43 0.84
2006–7 NAG 0.45 0.53 0.02 0.41 0.52 0.64 0.44 0.83
2007–8 NAG 0.43 0.59 0.01 0.42 0.51 0.61 0.46 0.76
2008–9 NAG 0.41 0.32 0.03 0.32 0.48 0.63 0.48 0.78
2009–10 NAG 0.41 0.28 0.01 0.31 0.48 0.65 0.51 0.80
2000–1 SKM 1.00 0.13 0.35 0.66 0.57 0.47 0.42 0.52
2001–2 SKM 1.00 0.14 0.49 0.69 0.62 0.54 0.43 0.64
2002–3 SKM 1.00 0.13 0.19 0.61 0.58 0.56 0.45 0.67
2003–4 SKM 1.00 0.12 0.68 0.74 0.65 0.56 0.46 0.65
2004–5 SKM 0.95 0.11 1.00 0.81 0.70 0.59 0.48 0.69
2005–6 SKM 0.90 0.25 0.44 0.65 0.60 0.55 0.50 0.61
2006–7 SKM 0.90 0.24 0.52 0.68 0.62 0.56 0.52 0.59
2007–8 SKM 0.89 0.23 0.70 0.72 0.65 0.58 0.54 0.62
2008–9 SKM 1.00 0.18 0.74 0.79 0.69 0.58 0.56 0.60
2009–10 SKM 1.00 0.16 0.55 0.68 0.65 0.61 0.59 0.64
2000–1 TRI 0.26 0.76 0.03 0.35 0.46 0.56 0.55 0.57
2001–2 TRI 0.20 0.78 0.15 0.36 0.48 0.60 0.57 0.64
2002–3 TRI 0.39 0.78 0.14 0.45 0.54 0.64 0.59 0.69
2003–4 TRI 0.39 0.76 0.16 0.44 0.53 0.63 0.61 0.65
2004–5 TRI 0.37 0.76 0.23 0.44 0.55 0.65 0.64 0.67
2005–6 TRI 0.38 0.73 0.03 0.39 0.50 0.61 0.66 0.55
2006–7 TRI 0.38 0.73 0.02 0.38 0.49 0.60 0.69 0.50
2007–8 TRI 0.37 0.70 0.02 0.38 0.52 0.66 0.73 0.60
2008–9 TRI 0.35 0.67 0.01 0.36 0.54 0.71 0.76 0.67
2009–10 TRI 0.36 0.67 0.11 0.38 0.57 0.75 0.80 0.70
2000–1 URK 0.82 1.00 1.00 0.91 0.69 0.46 0.50 0.43
2001–2 URK 0.85 1.00 0.67 0.85 0.68 0.51 0.50 0.52
2002–3 URK 0.81 1.00 0.70 0.83 0.67 0.51 0.50 0.51
2003–4 URK 0.92 1.00 0.73 0.89 0.69 0.48 0.51 0.46
2004–5 URK 0.76 1.00 0.60 0.77 0.63 0.49 0.51 0.47
2005–6 URK 0.77 1.00 0.81 0.83 0.65 0.47 0.51 0.43
2006–7 URK 0.79 1.00 0.77 0.82 0.62 0.42 0.51 0.33
2007–8 URK 0.82 1.00 0.86 0.86 0.66 0.46 0.51 0.40
2008–9 URK 0.81 1.00 0.88 0.86 0.67 0.48 0.51 0.44
2009–10 URK 0.81 1.00 0.77 0.82 0.65 0.48 0.51 0.45
Annex 5.11 Infrastructure Index with qualitative dimensions for general category states (2004–10)
Education Social
Quality of Quality Index Infrastructure Overall
Economic Social Education with NER Quality Index Index
Road Irrigation Electricity infrastructure Overall infrastructure Survival Literacy NER Index(Pass and Pass (Education with
Year State index index index index index index index index index Percentage) Percentage and Survive) Quality
2003–4 ANP 0.60 0.32 0.44 0.49 0.39 0.29 0.30 0.27 0.50 1.00 0.75 0.53 0.51
2004–5 ANP 0.52 0.34 0.33 0.43 0.36 0.28 0.31 0.26 0.52 1.00 0.76 0.53 0.48
2005–6 ANP 0.51 0.40 0.34 0.45 0.36 0.27 0.31 0.24 0.59 1.00 0.79 0.55 0.50
2006–7 ANP 0.51 0.44 0.35 0.46 0.36 0.27 0.31 0.23 0.47 1.00 0.73 0.52 0.49
2007–8 ANP 0.51 0.42 0.38 0.46 0.36 0.25 0.30 0.21 0.40 0.74 0.57 0.44 0.45
2008–9 ANP 0.63 0.44 0.38 0.53 0.39 0.25 0.32 0.18 0.33 1.00 0.67 0.49 0.51
2009–10 ANP 0.62 0.40 0.39 0.52 0.38 0.23 0.31 0.16 0.34 1.00 0.67 0.49 0.50
2003–4 BIH 0.30 0.55 0.00 0.34 0.24 0.13 0.27 0.00 0.25 0.32 0.28 0.28 0.31
2004–5 BIH 0.43 0.54 0.00 0.40 0.26 0.12 0.24 0.00 0.02 0.30 0.16 0.20 0.30
2005–6 BIH 0.44 0.56 0.00 0.41 0.26 0.12 0.24 0.00 0.14 0.27 0.20 0.22 0.31
2006–7 BIH 0.43 0.58 0.00 0.41 0.27 0.12 0.24 0.00 0.03 0.42 0.22 0.23 0.32
2007–8 BIH 0.43 0.58 0.00 0.40 0.26 0.12 0.23 0.00 0.00 0.27 0.13 0.18 0.29
2008–9 BIH 0.31 0.59 0.00 0.33 0.23 0.13 0.27 0.00 0.03 0.34 0.19 0.23 0.28
2009–10 BIH 0.31 0.58 0.00 0.32 0.23 0.13 0.27 0.00 0.13 0.30 0.22 0.24 0.28
2003–4 CHHAT 0.48 0.12 0.35 0.31 0.32 0.33 0.28 0.37 0.63 0.59 0.61 0.45 0.38
2004–5 CHHAT 0.53 0.15 0.29 0.33 0.31 0.28 0.21 0.36 0.42 0.45 0.43 0.32 0.32
2005–6 CHHAT 0.54 0.17 0.32 0.35 0.31 0.28 0.22 0.35 0.67 0.49 0.58 0.40 0.37
2006–7 CHHAT 0.54 0.19 0.42 0.39 0.33 0.28 0.22 0.33 0.30 0.58 0.44 0.33 0.36
2007–8 CHHAT 0.56 0.19 0.37 0.38 0.32 0.26 0.22 0.31 0.32 0.38 0.35 0.28 0.33
2008–9 CHHAT 0.65 0.20 0.61 0.51 0.39 0.26 0.23 0.29 0.26 0.51 0.39 0.31 0.41
2009–10 CHHAT 0.66 0.18 0.67 0.52 0.38 0.24 0.21 0.27 0.40 0.50 0.45 0.33 0.43
2003–4 GOA 0.73 0.15 1.00 0.77 0.81 0.86 0.93 0.80 0.39 0.57 0.48 0.70 0.74
2004–5 GOA 0.73 0.16 1.00 0.77 0.83 0.88 0.97 0.80 0.07 0.46 0.26 0.62 0.70
2005–6 GOA 0.73 0.15 1.00 0.76 0.83 0.90 1.00 0.79 0.15 0.44 0.29 0.65 0.71
2006–7 GOA 0.73 0.15 1.00 0.77 0.83 0.90 1.00 0.79 0.25 0.67 0.46 0.73 0.75
2007–8 GOA 0.74 0.16 1.00 0.77 0.83 0.90 1.00 0.79 0.06 0.51 0.29 0.64 0.71
2008–9 GOA 0.73 0.14 1.00 0.77 0.83 0.89 1.00 0.79 0.05 0.68 0.37 0.68 0.72
2009–10 GOA 0.71 0.14 1.00 0.75 0.82 0.89 1.00 0.79 0.07 0.53 0.30 0.65 0.70
2003–4 GUJ 0.96 0.29 0.85 0.77 0.61 0.45 0.39 0.51 0.44 0.71 0.57 0.48 0.63
2004–5 GUJ 0.96 0.32 0.58 0.70 0.57 0.43 0.35 0.51 0.20 0.59 0.40 0.38 0.54
2005–6 GUJ 0.97 0.36 0.64 0.72 0.58 0.43 0.36 0.51 0.31 0.65 0.48 0.42 0.57
2006–7 GUJ 0.96 0.41 0.62 0.73 0.58 0.43 0.34 0.51 0.17 0.76 0.47 0.40 0.57
2007–8 GUJ 0.96 0.41 0.67 0.75 0.59 0.42 0.33 0.51 0.08 0.53 0.30 0.32 0.54
2008–9 GUJ 0.99 0.40 0.63 0.76 0.59 0.43 0.34 0.52 0.00 0.65 0.33 0.33 0.55
2009–10 GUJ 0.98 0.38 0.70 0.78 0.61 0.43 0.35 0.52 0.00 0.60 0.30 0.32 0.55
2003–4 HAR 1.00 0.84 0.56 0.82 0.59 0.37 0.27 0.47 0.31 0.32 0.31 0.29 0.56
2004–5 HAR 1.00 0.86 0.41 0.77 0.57 0.36 0.26 0.47 0.16 0.18 0.17 0.21 0.49
2005–6 HAR 1.00 0.84 0.53 0.82 0.60 0.38 0.29 0.46 0.03 0.17 0.10 0.20 0.51
2006–7 HAR 1.00 0.86 0.56 0.83 0.60 0.37 0.29 0.46 0.12 0.39 0.26 0.27 0.55
2007–8 HAR 1.00 0.87 0.58 0.84 0.60 0.36 0.27 0.45 0.19 0.40 0.29 0.28 0.56
2008–9 HAR 1.00 0.86 0.54 0.84 0.60 0.36 0.29 0.44 0.19 0.44 0.31 0.30 0.57
2009–10 HAR 1.00 0.88 0.51 0.83 0.59 0.35 0.27 0.44 0.23 0.61 0.42 0.35 0.59
2003–4 JRK 0.22 0.00 0.34 0.21 0.25 0.30 0.45 0.15 0.24 0.17 0.21 0.33 0.27
2004–5 JRK 0.52 0.00 0.22 0.26 0.27 0.28 0.42 0.15 0.00 0.04 0.02 0.22 0.24
2005–6 JRK 0.53 0.00 0.25 0.28 0.28 0.28 0.42 0.14 0.00 0.06 0.03 0.23 0.25
2006–7 JRK 0.52 0.00 0.28 0.30 0.29 0.27 0.41 0.14 0.15 0.26 0.20 0.30 0.30
2007–8 JRK 0.54 0.00 0.26 0.30 0.29 0.27 0.40 0.14 0.16 0.17 0.17 0.28 0.29
2008–9 JRK 0.62 0.00 0.27 0.33 0.30 0.27 0.41 0.14 0.25 0.25 0.25 0.33 0.33
2009–10 JRK 0.64 0.00 0.35 0.39 0.32 0.26 0.38 0.13 0.37 0.22 0.29 0.34 0.36
2003–4 KAR 0.68 0.15 0.43 0.51 0.48 0.44 0.45 0.44 0.62 0.75 0.69 0.57 0.54
2004–5 KAR 0.61 0.18 0.28 0.43 0.43 0.43 0.42 0.44 0.58 0.57 0.57 0.50 0.46
2005–6 KAR 0.62 0.21 0.34 0.46 0.45 0.44 0.44 0.43 0.51 0.98 0.75 0.59 0.53
2006–7 KAR 0.56 0.23 0.36 0.44 0.43 0.42 0.42 0.43 0.52 0.94 0.73 0.58 0.51
2007–8 KAR 0.58 0.23 0.36 0.45 0.43 0.42 0.42 0.42 0.50 1.00 0.75 0.58 0.52
2008–9 KAR 0.61 0.25 0.35 0.47 0.45 0.44 0.46 0.41 0.37 0.76 0.56 0.51 0.49
2009–10 KAR 0.60 0.24 0.36 0.47 0.45 0.43 0.46 0.40 0.38 0.73 0.55 0.51 0.49
2003–4 KER 0.49 0.05 0.24 0.36 0.68 1.00 1.00 1.00 0.89 0.65 0.77 0.89 0.62
2004–5 KER 0.50 0.06 0.15 0.34 0.67 1.00 1.00 1.00 0.62 0.67 0.65 0.82 0.58
2005–6 KER 0.54 0.07 0.18 0.38 0.69 1.00 1.00 1.00 0.68 0.67 0.68 0.84 0.61
2006–7 KER 0.54 0.09 0.17 0.39 0.70 1.00 1.00 1.00 0.59 0.75 0.67 0.83 0.61
2007–8 KER 0.54 0.08 0.17 0.40 0.69 0.98 0.97 1.00 0.58 0.53 0.55 0.76 0.58
Continued
Education Social
Quality of Quality Index Infrastructure Overall
Economic Social Education with NER Quality Index Index
Road Irrigation Electricity infrastructure Overall infrastructure Survival Literacy NER Index(Pass and Pass (Education with
Year State index index index index index index index index index Percentage) Percentage and Survive) Quality
2008–9 KER 0.50 0.08 0.16 0.37 0.68 0.99 0.98 1.00 0.50 0.69 0.59 0.79 0.58
2009–10 KER 0.48 0.07 0.19 0.37 0.67 0.97 0.94 1.00 0.52 0.70 0.61 0.77 0.57
2003–4 MAH 0.19 0.09 0.50 0.27 0.43 0.59 0.64 0.54 0.61 0.91 0.76 0.70 0.48
2004–5 MAH 0.33 0.09 0.38 0.32 0.46 0.59 0.65 0.54 0.22 0.80 0.51 0.58 0.45
2005–6 MAH 0.34 0.10 0.45 0.34 0.47 0.60 0.66 0.54 0.66 0.79 0.72 0.69 0.52
2006–7 MAH 0.33 0.11 0.44 0.34 0.47 0.59 0.64 0.54 0.60 0.74 0.67 0.66 0.50
2007–8 MAH 0.33 0.11 0.44 0.34 0.46 0.58 0.62 0.54 0.52 0.55 0.54 0.58 0.46
2008–9 MAH 0.27 0.11 0.40 0.29 0.44 0.59 0.64 0.54 0.53 0.79 0.66 0.65 0.47
2009–10 MAH 0.29 0.09 0.42 0.31 0.45 0.59 0.65 0.54 0.52 0.85 0.68 0.67 0.49
2003–4 MP 0.80 0.22 0.23 0.48 0.41 0.34 0.00 0.67 0.54 0.19 0.36 0.18 0.33
2004–5 MP 0.82 0.24 0.21 0.50 0.42 0.34 0.00 0.67 0.42 0.00 0.21 0.10 0.30
2005–6 MP 0.83 0.23 0.26 0.51 0.42 0.33 0.00 0.67 0.48 0.08 0.28 0.14 0.32
2006–7 MP 0.82 0.27 0.24 0.51 0.42 0.33 0.00 0.66 0.51 0.12 0.32 0.16 0.33
2007–8 MP 0.83 0.26 0.25 0.52 0.42 0.33 0.00 0.66 0.46 0.08 0.27 0.13 0.33
2008–9 MP 0.87 0.26 0.22 0.53 0.43 0.33 0.00 0.65 0.46 0.11 0.29 0.14 0.33
2009–10 MP 0.87 0.26 0.22 0.53 0.43 0.32 0.00 0.64 0.58 0.12 0.35 0.17 0.35
2003–4 ORI 0.00 0.22 0.32 0.15 0.17 0.20 0.03 0.36 0.35 0.10 0.23 0.13 0.14
2004–5 ORI 0.00 0.24 0.31 0.16 0.17 0.19 0.02 0.36 0.09 0.02 0.05 0.03 0.10
2005–6 ORI 0.00 0.27 0.29 0.16 0.17 0.19 0.02 0.35 0.20 0.00 0.10 0.06 0.11
2006–7 ORI 0.00 0.30 0.29 0.17 0.17 0.18 0.02 0.35 0.00 0.00 0.00 0.01 0.09
2007–8 ORI 0.00 0.31 0.31 0.18 0.18 0.18 0.02 0.34 0.37 0.00 0.18 0.10 0.14
2008–9 ORI 0.00 0.29 0.31 0.17 0.18 0.19 0.04 0.34 0.40 0.00 0.20 0.12 0.14
2009–10 ORI 0.00 0.28 0.35 0.17 0.17 0.17 0.02 0.33 0.10 0.00 0.05 0.03 0.10
2003–4 PUN 0.69 1.00 0.84 0.83 0.67 0.50 0.51 0.50 0.00 0.00 0.00 0.25 0.54
2004–5 PUN 0.88 1.00 0.55 0.84 0.67 0.51 0.52 0.49 0.28 0.11 0.19 0.35 0.60
2005–6 PUN 0.87 1.00 0.72 0.87 0.68 0.50 0.51 0.49 0.33 0.12 0.22 0.37 0.62
2006–7 PUN 0.87 1.00 0.71 0.86 0.67 0.48 0.49 0.48 0.25 0.22 0.23 0.36 0.61
2007–8 PUN 0.87 1.00 0.73 0.86 0.67 0.48 0.48 0.47 0.11 0.24 0.17 0.33 0.60
2008–9 PUN 0.99 1.00 0.67 0.89 0.69 0.49 0.52 0.46 0.16 0.35 0.25 0.39 0.64
2009–10 PUN 0.98 1.00 0.66 0.89 0.69 0.49 0.54 0.44 0.20 0.65 0.42 0.48 0.68
2003–4 RAJ 0.65 0.22 0.24 0.41 0.32 0.22 0.18 0.27 0.36 0.83 0.59 0.39 0.40
2004–5 RAJ 0.67 0.27 0.24 0.44 0.31 0.19 0.13 0.25 0.21 0.67 0.44 0.28 0.36
2005–6 RAJ 0.69 0.30 0.26 0.46 0.32 0.18 0.12 0.24 0.45 0.61 0.53 0.32 0.39
2006–7 RAJ 0.71 0.32 0.25 0.47 0.32 0.17 0.12 0.22 0.37 0.72 0.55 0.33 0.40
2007–8 RAJ 0.73 0.31 0.29 0.49 0.33 0.16 0.12 0.19 0.27 0.52 0.40 0.26 0.38
2008–9 RAJ 0.82 0.28 0.30 0.54 0.35 0.16 0.14 0.17 0.32 0.66 0.49 0.31 0.43
2009–10 RAJ 0.82 0.26 0.29 0.54 0.34 0.14 0.13 0.14 0.26 0.71 0.48 0.31 0.43
2003–4 TN 0.80 0.42 0.62 0.70 0.64 0.58 0.57 0.59 1.00 0.80 0.90 0.73 0.72
2004–5 TN 0.81 0.49 0.40 0.65 0.63 0.61 0.63 0.59 1.00 0.80 0.90 0.76 0.71
2005–6 TN 0.84 0.53 0.47 0.69 0.65 0.61 0.63 0.59 1.00 0.85 0.92 0.78 0.73
2006–7 TN 0.84 0.54 0.49 0.70 0.65 0.60 0.63 0.58 1.00 0.93 0.97 0.80 0.75
2007–8 TN 0.85 0.53 0.50 0.71 0.66 0.61 0.65 0.57 1.00 0.68 0.84 0.74 0.73
2008–9 TN 0.87 0.55 0.48 0.73 0.68 0.63 0.70 0.57 1.00 0.86 0.93 0.81 0.77
2009–10 TN 0.86 0.54 0.47 0.71 0.68 0.64 0.73 0.56 1.00 0.71 0.85 0.79 0.75
2003–4 UP 0.17 0.72 0.14 0.34 0.25 0.16 0.10 0.21 0.34 0.45 0.40 0.25 0.30
2004–5 UP 0.40 0.74 0.11 0.44 0.28 0.13 0.05 0.21 0.08 0.37 0.23 0.14 0.29
2005–6 UP 0.43 0.74 0.12 0.45 0.29 0.13 0.05 0.21 0.26 0.37 0.31 0.18 0.32
2006–7 UP 0.41 0.75 0.12 0.44 0.28 0.13 0.05 0.21 0.12 0.43 0.28 0.16 0.30
2007–8 UP 0.44 0.75 0.12 0.45 0.29 0.13 0.05 0.21 0.06 0.33 0.19 0.12 0.28
2008–9 UP 0.47 0.77 0.12 0.47 0.30 0.14 0.07 0.20 0.03 0.42 0.22 0.15 0.31
2009–10 UP 0.47 0.75 0.11 0.45 0.28 0.11 0.02 0.20 0.06 0.31 0.18 0.10 0.28
2003–4 WEST 0.54 0.52 0.19 0.46 0.50 0.53 0.58 0.49 0.59 0.54 0.56 0.57 0.52
BENGAL
2004–5 WEST 0.07 0.53 0.16 0.21 0.38 0.55 0.61 0.48 0.43 0.45 0.44 0.53 0.37
BENGAL
2005–6 WEST 0.09 0.55 0.16 0.21 0.38 0.54 0.61 0.48 0.51 0.49 0.50 0.56 0.38
BENGAL
2006–7 WEST 0.08 0.55 0.15 0.20 0.37 0.53 0.59 0.47 0.39 0.58 0.49 0.54 0.37
BENGAL
2007–8 WEST 0.11 0.55 0.16 0.22 0.37 0.52 0.58 0.47 0.28 0.38 0.33 0.46 0.34
BENGAL
2008–9 WEST 0.24 0.55 0.16 0.29 0.41 0.53 0.61 0.46 0.26 0.46 0.36 0.48 0.39
BENGAL
2009–10 WEST 0.24 0.54 0.20 0.29 0.41 0.52 0.60 0.45 0.43 0.28 0.35 0.47 0.38
BENGAL
Annex 5.12 Infrastructure Index with qualitative dimensions for special category states (2004–10)
Quality of
iducation Social
Road Irrigation Electricity Infrastructure IMR Literacy Survival NER index (Pass infrastructure Overall
Year State index index index index index index index index percentage) index Index
2003–4 ARP 0.39 0.35 0.12 0.32 0.46 0.00 0.54 0.48 0.06 0.27 0.29
2004–5 ARP 0.65 0.37 0.26 0.43 0.44 0.00 0.56 0.37 0.00 0.28 0.36
2005–6 ARP 0.69 0.36 0.21 0.43 0.52 0.00 0.48 0.45 0.12 0.24 0.34
2006–7 ARP 0.69 0.37 0.19 0.43 0.46 0.00 0.54 0.61 0.18 0.27 0.35
2007–8 ARP 0.66 0.38 0.34 0.46 0.36 0.00 0.64 0.69 0.13 0.32 0.39
2008–9 ARP 0.69 0.32 0.30 0.44 0.36 0.00 0.64 0.87 0.17 0.32 0.38
2009–10 ARP 0.69 0.34 0.23 0.45 0.39 0.00 0.61 0.97 0.00 0.31 0.38
2003–4 ASM 0.00 0.00 0.10 0.02 1.00 0.26 0.00 0.17 0.31 0.13 0.07
2004–5 ASM 0.00 0.00 0.00 0.00 1.00 0.26 0.00 0.16 0.26 0.13 0.06
2005–6 ASM 0.00 0.00 0.00 0.00 1.00 0.26 0.00 0.15 0.37 0.13 0.06
2006–7 ASM 0.00 0.00 0.02 0.00 1.00 0.26 0.00 0.43 0.35 0.13 0.07
2007–8 ASM 0.00 0.00 0.00 0.00 1.00 0.26 0.00 0.63 0.36 0.13 0.06
2008–9 ASM 0.00 0.00 0.00 0.00 1.00 0.26 0.00 0.80 0.41 0.13 0.06
2009–10 ASM 0.00 0.00 0.00 0.00 1.00 0.25 0.00 0.71 0.21 0.13 0.06
2003–4 HP 0.64 0.36 1.00 0.70 0.71 0.65 0.29 1.00 1.00 0.47 0.59
2004–5 HP 1.00 0.37 0.81 0.77 0.65 0.66 0.35 1.00 1.00 0.50 0.63
2005–6 HP 1.00 0.39 1.00 0.85 0.70 0.66 0.30 1.00 1.00 0.48 0.66
2006–7 HP 0.65 0.38 1.00 0.73 0.65 0.66 0.35 1.00 1.00 0.51 0.62
2007–8 HP 0.65 0.38 1.00 0.73 0.60 0.67 0.40 1.00 0.96 0.53 0.63
2008–9 HP 0.69 0.32 1.00 0.74 0.64 0.67 0.36 1.00 1.00 0.51 0.63
2009–10 HP 0.72 0.34 1.00 0.77 0.59 0.68 0.41 0.93 1.00 0.54 0.66
2003–4 JK 0.45 0.89 0.69 0.64 0.67 0.04 0.33 0.56 0.84 0.18 0.41
2004–5 JK 0.45 0.92 0.54 0.61 0.67 0.05 0.33 0.45 0.76 0.19 0.40
2005–6 JK 0.47 0.91 0.91 0.71 0.73 0.05 0.27 0.52 0.82 0.16 0.43
2006–7 JK 0.46 0.88 0.84 0.68 0.72 0.05 0.28 0.59 0.94 0.17 0.42
2007–8 JK 0.47 0.86 0.78 0.65 0.70 0.06 0.30 0.53 1.00 0.18 0.42
2008–9 JK 0.44 0.84 0.85 0.65 0.64 0.06 0.36 0.71 0.99 0.21 0.43
2009–10 JK 0.48 0.85 0.64 0.60 0.66 0.07 0.34 0.81 0.80 0.20 0.40
2003–4 MAN 0.84 0.35 0.01 0.43 0.00 0.26 1.00 0.63 0.44 0.63 0.53
2004–5 MAN 0.74 0.46 0.12 0.44 0.00 0.27 1.00 0.52 0.36 0.64 0.54
2005–6 MAN 0.75 0.46 0.07 0.43 0.00 0.28 1.00 0.48 0.36 0.64 0.54
2006–7 MAN 0.74 0.45 0.05 0.42 0.00 0.29 1.00 0.72 0.29 0.65 0.53
2007–8 MAN 0.61 0.42 0.04 0.36 0.00 0.30 1.00 0.75 0.28 0.65 0.51
2008–9 MAN 0.62 0.36 0.05 0.36 0.00 0.32 1.00 0.74 0.28 0.66 0.51
2009–10 MAN 0.58 0.39 0.03 0.35 0.00 0.33 1.00 0.80 0.07 0.67 0.51
2003–4 MEG 0.65 0.64 0.70 0.66 0.77 1.00 0.23 0.00 0.29 0.62 0.64
2004–5 MEG 0.67 0.59 0.44 0.60 0.65 1.00 0.35 0.11 0.17 0.67 0.64
2005–6 MEG 0.57 0.51 0.58 0.56 0.75 1.00 0.25 0.00 0.24 0.63 0.59
2006–7 MEG 1.00 0.61 0.54 0.80 0.81 1.00 0.19 0.05 0.20 0.59 0.69
2007–8 MEG 1.00 0.51 0.57 0.77 0.88 1.00 0.12 0.30 0.17 0.56 0.67
2008–9 MEG 0.92 0.35 0.56 0.69 0.96 1.00 0.04 0.34 0.24 0.52 0.61
2009–10 MEG 0.87 0.38 0.40 0.64 0.93 1.00 0.07 0.40 0.30 0.53 0.59
2003–4 MIZ 0.54 0.35 0.20 0.44 0.10 0.25 0.90 0.50 0.17 0.58 0.51
2004–5 MIZ 0.51 0.38 0.34 0.45 0.13 0.24 0.87 0.53 0.23 0.56 0.50
2005–6 MIZ 0.53 0.38 0.13 0.42 0.25 0.23 0.75 0.83 0.37 0.49 0.45
2006–7 MIZ 0.54 0.20 0.00 0.36 0.20 0.21 0.80 0.65 0.22 0.51 0.43
2007–8 MIZ 0.53 0.16 0.21 0.38 0.46 0.20 0.54 0.82 0.13 0.37 0.38
2008–9 MIZ 0.56 0.11 0.22 0.39 0.44 0.19 0.56 1.00 0.17 0.37 0.38
2009–10 MIZ 0.60 0.06 0.15 0.39 0.52 0.17 0.48 1.00 0.38 0.32 0.36
2003–4 NAG 0.30 0.59 0.00 0.35 0.06 0.39 0.94 0.53 0.11 0.67 0.51
2004–5 NAG 0.40 0.57 0.02 0.41 0.09 0.41 0.91 0.61 0.17 0.66 0.54
2005–6 NAG 0.44 0.57 0.01 0.43 0.16 0.43 0.84 0.66 0.26 0.63 0.53
2006–7 NAG 0.45 0.53 0.02 0.41 0.17 0.44 0.83 0.89 0.24 0.64 0.52
2007–8 NAG 0.43 0.59 0.01 0.42 0.24 0.46 0.76 0.57 0.38 0.61 0.51
Continued
Quality of
iducation Social
Road Irrigation Electricity Infrastructure IMR Literacy Survival NER index (Pass infrastructure Overall
Year State index index index index index index index index percentage) index Index
2008–9 NAG 0.41 0.32 0.03 0.32 0.22 0.48 0.78 0.60 0.40 0.63 0.48
2009–10 NAG 0.41 0.28 0.01 0.31 0.20 0.51 0.80 0.64 0.49 0.65 0.48
2003–4 SKM 1.00 0.12 0.68 0.74 0.35 0.46 0.65 0.15 0.11 0.56 0.65
2004–5 SKM 0.95 0.11 1.00 0.81 0.31 0.48 0.69 0.00 0.06 0.59 0.70
2005–6 SKM 0.90 0.25 0.44 0.65 0.39 0.50 0.61 0.25 0.04 0.55 0.60
2006–7 SKM 0.90 0.24 0.52 0.68 0.41 0.52 0.59 0.00 0.22 0.56 0.62
2007–8 SKM 0.89 0.23 0.70 0.72 0.38 0.54 0.62 0.00 0.01 0.58 0.65
2008–9 SKM 1.00 0.18 0.74 0.79 0.40 0.56 0.60 0.00 0.02 0.58 0.69
2009–10 SKM 1.00 0.16 0.55 0.68 0.36 0.59 0.64 0.00 0.05 0.61 0.65
2003–4 TRI 0.39 0.76 0.16 0.44 0.35 0.61 0.65 0.72 0.00 0.63 0.53
2004–5 TRI 0.37 0.76 0.23 0.44 0.33 0.64 0.67 0.65 0.02 0.65 0.55
2005–6 TRI 0.38 0.73 0.03 0.39 0.45 0.66 0.55 0.76 0.00 0.61 0.50
2006–7 TRI 0.38 0.73 0.02 0.38 0.50 0.69 0.50 0.81 0.00 0.60 0.49
2007–8 TRI 0.37 0.70 0.02 0.38 0.40 0.73 0.60 0.87 0.00 0.66 0.52
2008–9 TRI 0.35 0.67 0.01 0.36 0.33 0.76 0.67 0.99 0.00 0.71 0.54
2009–10 TRI 0.36 0.67 0.11 0.38 0.30 0.80 0.70 0.88 0.04 0.75 0.57
2003–4 URK 0.92 1.00 0.73 0.89 0.54 0.51 0.46 0.40 0.64 0.48 0.69
2004–5 URK 0.76 1.00 0.60 0.77 0.53 0.51 0.47 0.46 0.62 0.49 0.63
2005–6 URK 0.77 1.00 0.81 0.83 0.57 0.51 0.43 0.41 0.68 0.47 0.65
2006–7 URK 0.79 1.00 0.77 0.82 0.67 0.51 0.33 0.33 0.64 0.42 0.62
2007–8 URK 0.82 1.00 0.86 0.86 0.60 0.51 0.40 0.52 0.54 0.46 0.66
2008–9 URK 0.81 1.00 0.88 0.86 0.56 0.51 0.44 0.63 0.68 0.48 0.67
2009–10 URK 0.81 1.00 0.77 0.82 0.55 0.51 0.45 0.61 0.76 0.48 0.65
6
Health and Growth
Introduction
The health status of the population can make a difference to the growth
prospects of a nation. This can be seen from a number of dimensions.
First, a healthy workforce ensures less absenteeism and thus higher
productivity. Second, as life expectancy increases there are increased
incentives to invest in human and physical capital. Third, better health
status has the potential to augment the savings rates in the economy as
workers have an inventive to save for retirement. Fourth, better health
status improves labour force participation rate (serious illness forces
people to drop out of the labour market). Health is also important from
the perspective of ‘demographic transformation’. As health awareness
improves, the infant mortality rate (IMR) drops, motivating people to
have smaller families. Seen from another angle, to the extent health
expenditure can be treated as an investment in human capital, it has the
scope to act as an engine of growth (Lucas, 1988).
India aspires to be a developed economy making full use of its demo-
graphic advantage, as 31 per cent of the population is under the age of 15.
However, a key worry in this context is the poor health status of its popula-
tion, especially that of the children. This is evident from worrisome health
indicators such as an infant mortality rate of 47, an under-five mortality rate
of 59 and the proportion of year-old children immunized against measles
at 70 per cent, which is far below the millennium development goals. The
indicators of maternal health are more worrisome. The poor record on the
health front is because of the inadequacy in health care services provided
by the government. The shortage is both in terms of physical infrastructure
and qualified personnel. According to the Rural Health Statistics (RHS),
2010, there is a shortage of 19,590 sub-centres; 4,252 PHCs and 2,115
157
CHCs in the country. There is shortage of 2,433 doctors at PHCs (10.27 per
cent of the required number), 11,361 specialists at CHCs (62.6 per cent of
the required number) and 13,683 nurses at PHCs and CHCs combined (i.e.,
24.69 per cent of the required number). In addition 7,655 pharmacists and
14,225 laboratory technicians are needed at PHCs and CHCs (27.13 per
cent and 50.42 per cent of the required number) in the country.
Part of the reason for the poor state of health infrastructure and, hence,
health outcomes is the low priority given to public spending on health.
Between 1996–7 and 2005–6, government spending as a proportion of
GDP was stagnant at about 1 per cent of GDP (Rao and Choudhary, 2012).
Government introduced the NRHM in 2005 to improve health infrastruc-
ture in the rural areas. Notwithstanding this intervention, public spending
on health accounted for a meager 1.3 per cent of GDP in 2010. The low
level of public spending has led to greater dependence on the private
sector for health care delivery at one end and relatively higher private
sector spending to access health care facilities. Thus, we find 80 per cent of
doctors, 26 per cent of nurses, 49 per cent of beds, 78 per cent of ambula-
tory services and 60 per cent of in-patient care are sourced from the private
sector (SC, 2012). In 2010, total expenditure on health as a percentage of
GDP was estimated to be 4.2 per cent, which consisted of 1.3 per cent of
public spending and 2.9 per cent of private spending. A decade back, public
spending and private spending on health were 1.1 per cent and 3.3 per
cent of GDP respectively. Thus, over the last ten years, the government’s
share of the total expenditure on health has increased from 26 per cent
to 29.2 per cent, whereas private expenditure’s share has declined from
74 to 70.8 per cent. The improved share of government spending in total
spending on health has been on account of the fall in private spending as
a proportion of GDP being sharper than the increases in public spending
as a proportion in GDP. Seen in another way, the share of government
expenditure on health as percentage of total government expenditure has
remained stagnant, at 3.6 per cent, between 2000 and 2010.
India experienced high growth from 2004–5 to 2007–8. This was a
good opportunity to devote a larger share of government spending to
health so as to increase the share of public spending as a share of GDP.
However, India missed that opportunity. India witnessed a significant
slowdown in growth in recent times. As overall growth for the 12th
five-year plan has been scaled down in the approach paper from 9 per
cent to 8.2 per cent in the best-case scenario, it naturally follows that the
government would face a resource crunch. As social-sector spending is
a soft target for expenditure compression, there is every possibility that
public spending on health will share a larger burden of this squeeze.
Health and Growth 159
The insensitive approach of the government to public health has

serious ramifications for the health and wealth of India’s population.
This can be seen from startling statistics brought out by the NSS surveys.
As per NSS figures, 28 per cent of rural residents and 20 per cent of urban
residents had no funds for healthcare. More than 40 per cent of the
population had to borrow money or sell assets to pay for their care, while
more than 35 per cent fell below the poverty line because of hospital
expenses. More than 2.2 per cent of the population may become impov-
erished because of hospital expenses, and the majority of those who did
not access the health system were from the lowest-income quintiles. The
rural–urban differences in health resources are stark, with 80 per cent of
doctors, 75 per cent of dispensaries and 60 per cent of hospitals being
in urban areas. The towns and cities have 11.3 qualified physicians per
10,000 populations against 1.9 in rural areas (Sen, 2012).
The preceding discussion suggests that the notion of universal health
coverage (UHC) eludes India after five and half decades of independence.
The Planning Commission of India constituted the High Level Expert
Group (HLEG) in 2010 to explore the possibility of universal health
coverage. The committee, under the chairmanship of Dr. Srinath Reddy,
made a convincing case for UHC in 2011. Subsequently, the steering
committee on health for the 12th five-year plan (chairperson – Syeda
Hameed) endorsed the idea of UHC and suggested its phased rollout during
the 12th five-year plan. This committee recommended that the cashless
and portable UHC should be piloted in one district in each state and UT
during the first year of the 12th plan and gradually expanded thereafter.
The public spending on health broadly comprises spending by the
central government and the state governments. State governments
account for a larger proportion of public spending than the central
government, as health is a state subject. During the 10th five-year plan
(2000–2 to 2006–7), of the total public spending on health of 0.94 per
cent of GDP, states accounted for 0.65 per cent. By the end of the 11th
five-year plan (2007–8 to 2011–12), the states’ spending on public health
had increased to 0.70 per cent of GDP and that of the centre to 0.34 per
cent. There has been a marginal increase in public spending on health
both by the central government and the state governments in the last
ten years, but it falls far below the requirement.
To implement UHC, the HLEG had recommended public spending on
health should reach 2.5 per cent by the end of 12th five-year plan and
3 per cent by 2022, or the end of the 13th five-year plan. Public health
expenditure is likely to reach 1.4 per cent of GDP (including drinking
water and sanitation to 1.8 per cent of GDP) by the end of 11th plan.
Though the draft approach paper to the 12th five-year plan sought to
raise the total health expenditure to 2.5 per cent of GDP by the end of
the 12th plan, the actual public spending on health has been pegged
at 1.58 per cent of GDP. The projected government spending on health
at the end of the 12th five-year plan is less than the proposed 2 per
cent of GDP made in the 11th five-year plan. The intent to spend on
public health is not only lower than previous commitments made by
the government, but much lower than a minimum of 5 per cent of GDP
recommended by the World Health Organization.
Making progress towards a healthier economy is incumbent on intent
and outcome. While intent of policy is captured through allocation of
spending, the outcome of the increased outlay should be reflected in
better health outcomes. Improved health status should positively influ-
ence the national output for the people enjoying a better living standard.
Against this backdrop, the present study enquires as to whether there is
good reason for prioritising public spending towards health by studying
the impact of public spending on health, on the health status of the
population and, further, how the health outcome influences the national
output. We study the impact of public spending on one of the basic health
indicators, that is, the infant mortality rate and, further, how improve-
ments in IMR affect output in the states of India. We also examine the
growth dependency of public expenditure on health. The study exam-
ines the historical relationship between output, health expenditure and
IMR for 17 general category states and 11 special category states of India
for the period 2000–12. The rest of the chapter is schematised along
the following lines. Section 6.1 provides a brief review of literature on
the relationship between economic growth, health care expenditure and
health outcomes. Some stylized facts about the behaviour of output,
health expenditure and IMR in the Indian states are described in Section
6.2. The methodology used to study the relation between output and
health expenditure, between health expenditure and IMR and between
IMR and output is discussed in Section 6.3, followed by a description of
the data. The results from the empirical estimates are outlined in Section
6.4. Concluding observations follow in Section 6.5.
6.1 Review of the literature
When it comes to how economic growth influences the health status of

the population, the impact can be seen through what is happening to
health-care spending. Health expenditure is a function of total resources
available (income or wealth) in the system. When incomes are rising,
there is scope for a rise in both private and public health expenditure.
As we have discussed, a rise in health expenditure makes possible higher
labour supply and productivity, eventually leading to higher income.
Thus runs the virtuous cycle. Barro (1997) has found that a 10 per cent
increase in life expectancy leads to a half percent increase in income
growth for the developed countries. In the case of the United Kingdom,
Fogel (1994) found that 30 per cent of the British economic growth
over last two hundred years can be attributed to improvements in nutri-
tion. Several other longitudinal studies support this conclusion (Almas
Heshmati, 2001). Thus, from a policy perspective, health is as much an
input to economic development as an outcome.
There have been several attempts to study how growth impacts
health outcomes at the empirical plane. Some prominent attempts were
by Newhouse (1977), Parkin et al. (1987), Posnett and Hitris (1992),
Pritchett and Summers (1996), Hansen and King (1996) and Barro
(1998). All the studies cited bring out the consistently strong effect that
income has in health differences. Bhalotra (2006), however, observed
from a study of macro economic evidence from rich and poor countries
that there is a positive association of health and income, but there is
limited evidence of an impact of aggregate income (GDP) on health.
Anand and Ravallion (1993), in a cross-country analysis of devel-
oping country data, found no evidence of GDP having an effect on
health outcomes, if poverty and public expenditure are held constant.
Pritchett and Summers (1996), using panel data for 58 developing
countries, identify a robust impact of aggregate income on health with
elasticity estimated to range between (–) 0.12 and (–) 0.3 depending on
the estimates used and on whether or not education is held constant.
Bhalotra (2006) found unconditional growth elasticity of ‘under 5’
mortality in India at about (–) 0.7. Controlling for state ‘fixed effects’,
raises the elasticity up to (–) 1.0. But inclusion of ‘year effects’ reduced
it to (–) 0.6. Malik (2006) observed that health indicators do not have
a significant effect on Gross National Income. The estimates based on
two-stage least squares reduced form equation shows no significant
effect of health indicators – such as life expectancy, IMR and total
fertility rates – on growth in income. As regards developed countries,
Deaton and Paxson(2004) find no effect of income on mortality in the
United Kingdom and only a small effect in the United States. The effect
is considerably diminished when time dummies and education are built
into the model. Effect of income on health may not find full reflection
when mortality risk is concentrated (such as in pockets of poverty) and
income distribution very much skewed. Apart from this variation in
evidence, there are differences in the evidence depending on whether

it is based on microeconomic data on health and income or aggregated
data. Deaton and Paxson (2001, 2004) conclude that understanding the
effect of income on mortality presents many puzzles, between countries
and between analyses at different levels of aggregation.
The interest in health expenditure ultimately lies in its potentiality
to improve the health outcomes of a nation. A number of studies –
including those of Poullier, Patricia, Kei and Savedoff, 2002, Bokhari, Gai
and Gottret, 2007 – bring out the importance of government spending on
health in determining health outcomes. Bokhari, Gai and Gottret (2007)
find that, for developing countries, while economic growth is an impor-
tant contributor to health outcomes, government spending on health is
an equally important factor. Though government spending is important
in general, it is very much possible that the scope of health expenditure
may expand in an economy without significant improvement in health
outcomes. This point of view is substantiated by analysis data on health
expenditure and health outcomes for 150 countries – including both
developed and developing and underdeveloped countries – by Poullier,
Patricia, Kei and Savedoff (2002), who find that health spending does
determine health outcomes, but the relationship is not linear. Poullier,
Patricia, Kei and Savedoff (2002) in their study delineates three broad
patterns that explain the relationship between health spending and
health outcomes. First, in countries that spent less on health care to
begin with, higher spending has a significant impact on health status.
Second, public policy makes a difference in the effectiveness of health
spending in determining health outcomes in the low-spending coun-
tries. Third, among high-spending countries, additional spending bears
little relationship to improvements in health-adjusted life expectancy.
In the light of the cross-country empirical findings, it would be of
interest to examine how public health expenditure, growth and health
outcomes interact in the case of India. As the aggregate picture often
conceals more than what it reveals, we try to explore the direction of
causation, the strength of the relationship between economic growth,
public health expenditure and health outcomes for India at the disag-
gregated state level. What follows is a discussion on the broad behaviour
of output, public health expenditure and IMR in the post-reform period
before we study the causality.
6.2 Stylised facts
The low public spending on health is on account of a couple of factors.

Broadly, it was a consequence of fiscal profligacy coupled with misplaced
fiscal priorities in the 1980s and 1990s. Subsequently, there have been
attempts to enforce fiscal discipline, both at the levels of the central and
state governments, through the 2003 promulgation of fiscal responsi-
bility legislation (FRL) which prescribes outer limits for government’s
fiscal deficit. In light of constraints posed by the FRL at one end and
government’s committed administrative expenditure at the other, there
is grave concern that public spending on health in India may not be able
to meet the growing needs of the population, not even in the foresee-
able future (Panda, 2006).
Health care services in India have always lagged behind demand for
such services, including the availability of health care professionals in the
country. Just before India’s independence, the Sir Joseph Bhore Committee
(1946) prescribed the norm of one doctor per 1,500 population and one
nurse per 500 population. Instead, the doctor–population ratio was 1:1,800
in as late as the year 2001. Like the doctor–population ratio, progress in the
provision of important health care infrastructure has also been tardy. This is
brought out in table 6.1. Further, the deficiency in health care infrastructure
has been acute in the rural areas. According to the RHSBulletin, June 2000
(Ministry of Health and Family Welfare), thereis a huge gap2 between the
actual number of available personnel and the number needed, including
specialist doctors, block-extension educators, pharmacists, lab technicians,
X-ray technicians, and so forth. Roughly there was a 25 per cent deficit in
the foreseen requirement in 1991 and the availability in 2000 in rural health
personnel across categories. To cite an example: as against the requirement
of 22,348 specialist doctors, the gap is still 18,607. In some categories, the
gap is less glaring, while in others it is larger. Notwithstanding the defi-
ciency in health-care infrastructure, India has made significant strides in
health outcomes. This has been made possible by the health-care facilities
provided by the private sector and people’s willingness to pay for private
medical facilities. The all-India picture subsumes the details and regional
variations in health expenditure and health outcomes. The federated states
of the Indian Union are in different places of the income spectrum and
have varied achievement in social parameters. As health is a state subject,
much would depend on the initiative of the state concerned in putting
health as a priority in its scheme of resource commitment. Here, we look
at the changing pattern of health-care spending across states between 2000
and 2012 and the growth in health-care spending versus spending on other
heads in the GCS and SCS.
GCS
As far as health expenditure in the GCS is concerned, we find
Maharashtra had the highest health expenditure and Goa had the
Table 6.1 Progress in health care availability 1951–2010 (Per lakh population)
Health
infrastructure 1951 1981 1991 2000 2004 2005 2011
Sc/PHC/CHC 0.20 8.45 6.73 16.08 15.57 15.56 14.90

Hospitals 2.57 3.47 2.77 4.27 3.50 2.52 1.01
Beds (Pvt. & 32.65 83.87 95 88 84.24 42.8 46.5*
Public)
Doctors 17.21 39.57 31.55 49.66 57.58 59.50 69
(Modern
System)
Nursing 5.03 21.19 16.89 72.63 77.01 78.45 92*
Personnel
Health outcome
Life Expectancy 36.7 54 57** 64.6 63.3 64 –
IMR 146 110 80 68 60* 58 47
Source: National Health Policy – 2002Selected socio-economic statistics, India, 2011.

Note: 2011 figures for hospitals refer to only government hospitals.
*refers to as of 2009, **f or male.
lowest in absolute amounts in 2000. If we exclude Goa, Chhattisgarh

had the lowest health expenditure in absolute amounts. However, in
per capita terms, Goa had the highest health expenditure at Rs. 651
followed by Punjab Rs. 215 and Bihar had the lowest at Rs. 62. By
2012, Uttar Pradesh had relegated Maharashtra to second position
and has emerged as the state having the highest health expenditure.
Goa had the lowest absolute expenditure on health across states. If
we exclude Goa, Jharkhand has replaced Chhattisgarh at the bottom
position. In per capita terms, Goa (Rs. 2,258) again had the highest
expenditure on health, followed by Kerala (Rs. 710) and Bihar had the
lowest Rs. 183.10.
In these 13 years both Bihar and Goa have retained positions at the
bottom and the top, respectively. However, the per capita expenditure
has grown by 3.8 times for Bihar and only 3.5 times for Goa. For Punjab,
which had the second-highest per capita health expenditure, the growth
has been only 2.7 times, and for Maharashtra, the growth has been only
3.1 times. When we look at the absolute health expenditure, for Bihar
the growth has been 4.7 times, whereas for Punjab and Maharashtra the
growth has been only 3.4 times and 3.7 times. In the case of Goa, the
growth in total health expenditure has been 5.1 times.
During the entire period under study, health expenditure as a propor-
tion of SDP was observed at 0.6 per cent. Goa had the highest share
(1 per cent), followed by Bihar (0.9 per cent) and Jharkhand and Uttar
Pradesh (0.8 per cent). Maharashtra and Haryana had the lowest share
(0.4 per cent). Health expenditure falls under developmental expendi-
ture. Development expenditure accounted for 62 per cent of total
expenditure in the states, with Chhattisgarh having the highest share
(70.5 per cent), Jharkhand (70.3 per cent) and Andhra Pradesh (68.2 per
cent). Punjab had the lowest share of development expenditure in total
expenditure (46.3 per cent), followed by Kerala (52.7 per cent) and West
Bengal (53.5 per cent). Health expenditure as proportion of develop-
mental expenditure was observed at 6.1 per cent for these 17 states. This
ratio was the highest for Kerala (9 per cent) followed by West Bengal (8.7
per cent) and Punjab (7.7 per cent). Haryana had the lowest share (4.5
per cent) followed by Gujarat (4.7 per cent).
Total expenditure as proportion of SDP was the highest for Bihar (23.4
per cent) followed by Goa (20.6 per cent), Uttar Pradesh (20 per cent)
and Jharkhand (19.4 per cent). Maharashtra had the lowest share (13
per cent). Health expenditure falls under social services in the budgetary
classification of states. Social services accounted for 54 per cent of the
combined expenditure on social and economic services. West Bengal
(66.1 per cent) had the highest share of social services in the combined
expenditure, followed by Kerala (62.6 per cent) and Rajasthan (61.7 per
cent). Goa had the lowest share (45.4 per cent) followed by Karnataka
(48.1 per cent). Health expenditure as proportion of social services
expenditure amounted to 11.3 per cent for all the general category states.
This share has been highest for Goa (16.2 per cent) followed by Odisha
(15.5 per cent) and Kerala (14.4 per cent). Haryana (9.1 per cent) had the
lowest share, followed by Gujarat (9.3 per cent) and Chhattisgarh (9.6
per cent). The proportion of plan and non-plan expenditure on health
has been in the ratio of 76:24.
Growth in per capita total expenditure for these 17 states has been at the
same pace as the per capita SDP. However, this pattern was not uniform
for all 17 states. We find, eight states had a higher per capita expenditure
growth than the growth in per capita SDP, and for the remaining nine it
was lower. However, growth of per capita health expenditure at 11 per cent
has fallen short of per capita SDP growth of 12 per cent during 2000–12 for
the 17 states taken together. During this period population growth was 1.5
per cent. There are a number of states, like Jharkhand, Madhya Pradesh,
Chhattisgarh and Uttar Pradesh, where per capita health expenditure has
grown at a faster pace than the per capita SDP growth. We find only one
instance, viz, Chhattisgarh, where not only per capita health expenditure
has grown at a faster pace than per capita GSDP growth, but the per capita
GSDP growth has been higher than that for all states taken together. Uttar
Pradesh had the highest per capita growth in health expenditure (16.1
Table 6.2 Share of health related expenditure in SDP (Per cent)
expenditure
expenditure to social
State
Share of total
expenditure to SDP
Share of
developmental
expenditure to total
Share of
non-developmental
expenditure to total
expenditure
Share of health
expenditure to
developmental
expenditure
Share of health
expenditure to SDP
Share of non-plan
component in health
expenditure
Share of plan
component in health
expenditure
Share of social
services in combined
social and economic
services expenditure
Share of economic
services in combined
social and economic
Share of health
Andhra 16.7 68.2 31.3 5.3 0.6 76.9 23.1 48.3 51.7 10.9
Pradesh
Bihar 23.4 60.7 39.2 6.4 0.9 85.3 14.8 58.0 42.1 10.9
Chhattisgarh 17.7 70.5 26.4 5.3 0.7 52.3 47.4 55.3 45.2 9.6
Goa 20.6 67.1 32.9 7.3 1.0 69.6 30.4 45.4 54.6 16.2
Gujarat 14.7 67.9 31.7 4.7 0.5 65.1 34.9 50.8 49.2 9.3
Haryana 13.7 66.8 32.6 4.5 0.4 73.7 26.3 48.8 51.2 9.1
Jharkhand 19.4 70.3 29.8 6.1 0.8 65.1 34.7 54.0 45.9 11.3
Karnataka 17.1 68.0 28.5 5.4 0.6 67.4 32.6 48.1 51.9 11.1
Kerala 15.0 52.7 43.6 9.0 0.7 88.5 11.5 62.6 37.4 14.4
Maharashtra 13.0 63.6 35.0 5.4 0.4 78.3 21.7 55.4 44.6 9.7
Madhya 18.9 65.6 30.3 5.6 0.7 76.5 23.6 47.7 52.1 11.8
Pradesh
Odisha 18.4 59.6 39.1 5.9 0.6 81.5 18.5 58.3 41.7 10.1
Punjab 17.0 46.3 52.2 7.7 0.6 89.8 10.2 49.7 50.3 15.5
Rajasthan 17.7 63.8 36.1 6.5 0.7 83.6 16.4 61.7 38.3 10.5
Tamil Nadu 15.0 60.1 34.3 6.3 0.6 74.8 25.2 59.5 40.5 10.7
Uttar Pradesh 20.0 57.8 38.9 6.8 0.8 75.5 24.4 51.3 48.7 13.4
West Bengal 14.9 53.5 45.6 8.7 0.7 78.0 22.0 66.1 33.9 13.1
Group 16.3 62.1 35.9 6.1 0.6 75.8 24.2 53.9 46.1 11.3
Arunachal 61.3 72.5 27.5 5.8 2.6 66.5 33.5 37.1 62.9 15.8
Pradesh
Assam 22.1 62.8 35.0 6.3 0.9 70.6 29.4 58.3 41.7 10.7
Himachal 28.1 63.0 36.8 7.7 1.4 57.4 42.6 56.1 43.9 13.7
Pradesh
Jammu & 41.5 62.6 37.4 8.4 2.2 67.7 32.3 44.0 56.0 19.0
Kashmir
Manipur 49.2 66.2 33.4 5.9 2.0 67.0 34.5 49.3 50.7 12.0
Meghalaya 28.4 68.7 31.3 7.9 1.5 54.3 45.7 51.9 48.1 15.1
Mizoram 63.3 70.6 29.4 6.6 2.9 42.4 57.6 48.8 51.2 13.4
Nagaland 41.8 59.4 40.6 7.2 1.8 71.9 28.1 46.2 53.8 15.5
Sikkim 102.5 45.3 54.6 6.0 2.6 56.8 43.2 49.8 50.2 12.1
Tripura 32.9 62.3 36.2 6.4 1.3 56.9 43.1 57.6 42.4 11.1
Uttarakhand 20.4 66.5 30.9 6.4 0.9 68.1 33.1 55.5 44.5 11.6
SCS 32.5 62.9 36.2 7.1 1.4 63.3 36.8 51.0 49.0 13.8
India 15.6 62.3 35.8 6.2 0.6 74.4 25.7 53.6 46.4 11.5
Table 6.3 CAGR of health expenditure and SDP (Per cent)
population
State
Growth of
per capita SDP
Growth of
Growth of
per capita health
care expenditure
Growth of
per capita health
care expenditure
plan component
Growth of per
capita health care
expenditure non-plan
component
Growth of per capita
total expenditure
developmental
expenditure
Growth of
per capita
non-developmental
expenditure
expenditure on social
services
expenditure on
economic services
Andhra Pradesh 13.4 1.1 12.1 15.2 11.0 13.9 15.4 10.8 14.7 16.2
Bihar 11.4 1.7 12.0 16.1 11.4 13.9 16.9 9.2 14.6 20.2
Chhattisgarh 12.7 1.9 13.9 20.8 8.1 15.8 17.8 11.1 16.9 18.7
Goa 13.2 3.2 11.7 17.5 9.4 9.5 11.9 5.0 12.1 11.8
Gujarat 13.4 1.6 10.5 22.5 4.1 9.6 9.4 10.1 10.6 8.1
Haryana 13.9 1.8 13.8 21.0 11.2 13.2 15.3 8.7 15.8 14.7
Jharkhand 9.6 1.6 13.0 17.8 10.3 12.9 13.2 11.9 13.5 12.9
Karnataka 12.3 1.2 10.6 15.9 8.0 12.8 14.1 8.9 13.8 14.4
Kerala 12.3 0.9 11.0 13.6 10.7 11.3 10.3 10.6 11.2 8.8
Maharashtra 12.7 1.5 9.5 12.3 8.7 11.0 12.8 8.0 12.8 12.8
Madhya Pradesh 9.9 1.8 10.5 7.8 11.2 12.5 12.8 11.0 12.6 13.2
Odisha 13.9 1.3 10.3 7.1 11.2 12.4 14.1 9.7 12.7 16.1
Punjab 10.0 1.8 6.1 −4.6 7.3 9.2 10.4 7.6 10.4 10.4
Rajasthan 11.1 1.9 9.7 10.9 9.4 10.4 11.9 7.9 10.6 14.0
Tamil Nadu 13.0 0.8 11.7 13.8 11.9 13.3 14.4 10.6 14.1 14.8
Uttar Pradesh 10.1 1.9 16.1 35.8 12.4 13.1 14.9 10.3 16.4 13.5
West Bengal 11.2 1.1 8.5 7.9 13.3 11.0 12.1 9.8 12.2 11.5
Group 12.0 1.5 11.1 15.1 9.9 12.0 13.3 9.5 13.3 13.3
Arunachal Pradesh 11.2 2.4 11.1 6.2 13.0 14.6 13.7 16.0 12.9 14.1
Assam 9.1 1.4 15.7 10.4 17.9 14.2 14.4 11.5 13.1 16.5
Himachal Pradesh 11.5 1.4 8.8 −1.4 14.3 10.0 10.0 10.1 10.3 9.7
Jammu & Kashmir 9.6 1.5 10.9 9.6 11.5 11.0 11.7 10.0 12.2 11.3
Manipur 7.7 2.0 15.0 31.0 5.4 12.7 14.0 9.6 11.9 16.2
Meghalaya 10.9 1.3 10.5 13.0 8.0 12.9 13.8 10.8 12.2 15.6
Mizoram 9.4 2.6 8.8 8.7 8.4 9.6 9.5 9.8 9.2 9.9
Nagaland 7.4 3.7 6.6 1.6 8.5 8.4 8.5 8.2 7.2 9.6
Sikkim 17.8 1.4 14.4 17.6 11.4 8.9 13.4 5.5 13.8 13.1
Tripura 10.0 1.2 13.6 23.1 7.5 9.9 8.6 11.9 9.3 7.7
Uttarakhand 16.9 1.6 17.1 26.9 12.7 16.2 16.3 15.7 16.7 15.6
SCS 9.9 1.5 12.1 10.7 12.9 11.9 12.3 10.6 11.9 12.8
India 12.0 1.5 11.3 14.6 10.2 12.1 13.2 9.7 13.2 13.3
Note: GPSDP refers to per capital gross SDP at current market prices base 2004–5.
per cent) followed by Chhattisgarh (13.9 per cent) and Haryana (13.8 per
cent). Punjab had the least growth (6.5 per cent) followed by Maharatsra
(9.5 per cent) and Rajasthan (9.7 per cent).
While developmental expenditure has grown at a faster pace than
that of output in per capita terms, non-developmental expenditure has
grown at a much lower pace for all states taken together. At the level of
individual states, only in the cases of Goa, Gujarat and Kerala did per
capita development expenditure grow at a slower pace than per capita
SDP. As far as non-developmental expenditure is concerned, only in the
cases of Jharkhand, Madhya Pradesh and Uttar Pradesh was the growth
higher than growth in per capita SDP. Further, except for Kerala, the
growth in planned development expenditure in all other states was
higher than that of the non-plan component in per capita terms.
In per capita terms, both social and economic services have grown at a
faster pace than output for all 17 states taken together. In the cases of Gujarat,
Goa and Kerala, growth in expenditure on both social and economic services
has been lower than growth in output. Further, in Odisha and Rajasthan,
growth in per capita expenditure on social services has been lower than that
of per capita SDP. In all other states, growth in expenditure on economic
and social services has outpaced growth in output.
Except for Madhya Pradesh, Odisha, Punjab and West Bengal, in all
other states the growth in planned health expenditure was higher than
growth in non-plan health expenditure in per capita terms. Within social
sector expenditure, the growth in plan component of health expendi-
ture was higher than that of the non-plan component for all the states
taken together as well as for the individual states. Within expenditure on
economic services, the growth in the plan component was much higher
than the growth for the non-plan component for all states taken together
and seen individually, except for Kerala. The more important question
is: Does the health expenditure influence the health outcome?
A scatter plot of the health expenditure and health status proxied
though the infant mortality rate (IMR) reveals a positive association
between them.1 This brings out the importance of health expenditure
in the states.
Seen from a different perspective, the standard deviation of log of per
capita SDP has increased from 0.39 in 2000 to 0.45 in 2010. However,
the standard deviation of log of per capita health expenditure has
declined from 0.36 in 2000 to 0.29 in 2010. This suggests that states
which earlier were spending less on health have relatively increased their
spending over time compared to states having a higher per capita health
expenditure to begin with. This is a welcome trend. This broad trend is
100
90
IMR = –6.997He + 56.08
80
70
60
IMR
50
40
30
20
10
0
0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4
Health expenditure as percent of SDP
Figure 6.1 Scatter plot of health expenditure and IMR – GCS
also noticed for per capita total expenditure, per capita development
expenditure, per capita social sector expenditure and per capita expendi-
ture on economic services. Between 2000 and 2010, the standard devia-
tion in log of IMR has also shown a marginal decline, suggesting that the
achievement in reduction in IMR has been relatively better in the states
having very high IMR to begin with. The decline, however, has not been
steady. Odisha had the highest IMR in 2000, at 95 and Kerala had the
lowest, at 14. By 2010, Goa had the lowest IMR, at 10, but the IMR of
Odisha had declined to 61. In 2010, Uttar Pradesh and Madhya Pradesh
had the highest IMR, at 62. Kerala’s IMR was 13.
SCS
As far as health expenditure in the SCS in 2000 is concerned, we find
Jammu and Kashmir had the highest health expenditure and Sikkim had
the lowest in absolute amounts. However, in per capita terms, Mizoram
had the highest health expenditure, at Rs. 643, followed by Sikkim, at
Rs. 598, while Assam had the lowest, at Rs. 99. By 2012, in absolute
amounts, Assam had relegated Jammu and Kashmir to the second posi-
tion and emerged as the state having the highest health expenditure.
Mizoram had the lowest absolute amount of expenditure on health
across the SCS. In per capita terms, Sikkim had relegated Mizoram to
the second position, and emerged as the state having the highest health
expenditure, at Rs. 3,318, while Assam had the lowest, at Rs. 424
In these 13 years Assam occupied the bottommost position in terms of
per capita health expenditure. While per capita expenditure has grown
by 5.5 times for Sikkim, it has grown by only 4.3 times for Assam. For
Mizoram which had the highest per capita health expenditure in 2000,
the growth has been only 2.4 times. When we look at the absolute
health expenditure, the growth has been 5 times for Assam, whereas for
Jammu and Kashmir and Mizoram the growth has been only 3.2 times. In
2011–12, the highest growth in total health expenditure was 7.8 times, for
Uttarakhand, and the lowest growth was 3 times, for Himachal Pradesh.
During the entire period under study, health expenditure as a proportion
of SDP was 1.4 per cent. Mizoram had the highest share, at 2.9 per cent,
followed by Arunachal Pradesh and Sikkim, at 2.6 per cent, and Jammu
and Kashmir, at 2.2 per cent. Assam and Uttarakhand had the lowest share,
at 0.9 per cent. Health expenditure falls under developmental expendi-
ture. Development expenditure accounted for close to 63 per cent of total
expenditure in the SCS, with Arunachal Pradesh having the highest share
at 72.5 per cent, with Mizoram at 70.6 per cent and Meghalaya, at 68.7
per cent. Sikkim had the lowest share of development expenditure in total
expenditure, at 45.3 per cent, followed by Nagaland, 59.4 per cent, and
Tripura, 62.3 per cent. Health expenditure as proportion of developmental
expenditure was observed at 7.1 per cent for these 11 states. This ratio was
the highest for Jammu and Kashmir at 8.4 per cent followed by Meghalaya,
at 7.9 per cent, and Himachal Pradesh, at 7.7 per cent. Arunachal Pradesh
had the lowest share at 5.8 per cent, followed by Sikkim at 6 per cent.
Total expenditure as proportion of SDP was the highest for Sikkim
(102.5 per cent) followed by Mizoram (63.3 per cent), Arunachal Pradesh
(61.3 per cent) and Manipur (49.2 per cent). Uttaranachal had the lowest
share (20.4 per cent). Health expenditure falls under social services in the
budgetary classification of states. Social services accounted for 51 per cent
of the combined expenditure on social and economic services. Assam
(58.3 per cent) had the highest share of social services in the combined
expenditure, followed by Tripura (57.6 per cent) and Himachal Pradesh
(56.1 per cent). Arunachal Pradesh had the lowest share (37.1 per cent)
followed by Jammu and Kashmir (44 per cent). Health expenditure as
proportion of social services expenditure amounted to 13.8 per cent for
all the special category states. This share has been highest for Jammu
and Kashmir (19 per cent) followed by Arunachal Pradesh (15.8 per cent)
and Nagaland (15.5 per cent). Assam (10.7 per cent) had the lowest share
followed by Tripura (11.1 per cent) and Manipur (12 per cent).
The proportion of plan and non-plan expenditure on health has been
in the ratio of 36.8:63.2.
Growth of per capita health expenditure at 12.1 per cent has outpaced
per capita SDP growth of 9.9 per cent during 2000–12 for the 11 states
taken together. During this period population growth has been 1.5
per cent. However, for five states – that is, Arunachal Pradesh, Himachal
Pradesh, Meghalaya, Mizoram and Nagaland – per capita health expend-
iture has grown at a slower pace than the per capita SDP.
Uttarakhand had the highest per capita growth in health expenditure
(17.1 per cent) followed by Assam (15.7 per cent) and Sikkim (14.4 per
cent). Nagaland had the least growth (6.6 per cent) followed by Mizoram
and Himachal Pradesh (8.8 per cent).
Growth in per capita total expenditure for these 11 states also outpaced
that of per capita SDP. However, this pattern was not uniform for all 11
states. We find seven states had a per capita expenditure growth that was
higher than the growth in per capita SDP, and for the remaining four,
it was lower.
Both social and economic services, in per capita terms, have grown at
a faster pace than per capita output for all the 11 states taken together.
Further, in five states – Arunachal Pradesh, Assam, Jammu and Kashmir,
Manipur and Meghalaya – growth in per capita expenditure on social
services has been higher than that of per capita SDP. In these five states,
along with Mizoram and Nagaland, growth in expenditure on economic
services has outpaced that of output.
Both developmental and non-developmental expenditures have
grown at a faster pace than that of output in per capita terms. At the
level of individual states, per capita development expenditure grew at
a faster pace than per capita SDP only in case of Arunachal Pradesh,
Assam, Jammu and Kashmir, Manipur, Meghalaya and Mizoram. As far as
non-developmental expenditure is concerned, only in case of Arunachal
Pradesh, Assam, Manipur, Mizoram, Nagaland and Tripura was the
growth higher than growth in per capita SDP. Further, in a majority
of states (eight), the growth in planned development expenditure was
higher than that of the non-plan component in per capita terms.
Except for Arunachal Pradesh, Assam, Himachal Pradesh, Jammu and
Kashmir and Nagaland, the growth in planned health expenditure in all
other states was higher than that of non-plan health expenditure in per
capita terms.
Within social sector expenditure, the growth in the plan component
was much higher than the non-plan component for all the states except
Arunachal Pradesh, Himachal Pradesh and Nagaland, taken together as
well for the individual states. Within expenditure on economic serv-
ices, growth in the plan component was much higher than that for the
non-plan component for all states taken together and also for individual
states except for Arunachal Pradesh, Himachal Pradesh and Nagaland.
80
70
IMR = –7.8906He + 52.961
60 IMR
50 Linear (IMR)
IMR
40
30
20
10
0
0 1 2 3 4 5
Health expenditure as percent of SDP
Figure 6.2 Scatter plot of HE and IMR – SCS
A scatter plot of the health expenditure and health status proxied

though the IMR reveals a positive association between them2. This
brings out the importance of health expenditure in the states.
Seen from different perspective, the standard deviation of log of per
capita SDP has increased to 0.36 in 2010 from 0.19 in 2000. However, the
standard deviation of log of per capita health expenditure has declined
from 0.62 in 2000 to 0.0.52 in 2010. This suggests that states which were
earlier spending less on health have relatively increased their spending
over time compared to states having higher per capita health expenditure
to begin with. This is a welcome trend. This broad trend is also noticed
for per capita total expenditure, per capita development expenditure, per
capita social sector expenditure and per capita expenditure on economic
services. As far as IMR is concerned, the standard deviation in log of IMR
actually increased between 2000 and 2002. However, in subsequent years
the standard deviation has seen a decline and in the year 2010, it was less
than that in 2000. The decline suggests that the achievement in reduc-
tion in IMR has been relatively better in the states having very high IMR
to begin with. Assam had the highest IMR in 2000 at 75 and Mizoram
had the lowest at 21. By 2010, Manipur had the lowest IMR at 14 but the
IMR of Assam continued to be the highest at 58. Mizoram’s IMR which
was the lowest amongst SCS in 2000 had increased to 37 in 2010.
6.3 Empirical methodology
To decipher the relationship among output, health expenditure and IMR,

we employ panel FMOLS tests to study the causality between output
and health expenditure and also between health expenditure and SDP.
The standard approach to testing for causality amongst economic vari-
ables is the Granger causality. As we have information, both in the time
series and the cross-section dimension, the test of cointegration in a
panel context becomes more useful. Now, we discuss the methodology
to study the Granger causality in a panel data set.
A study of causality in a panel context would require an examina-
tion of the data at hand for stationarity, in the first place, followed by
a test of cointegration in the panel context. Further, in the event of
panel cointegration, we discuss the appropriate methods that can be
employed to study causality.
Panel unit root, panel cointegration and panel FMOLS

estimation
Panel unit root tests
Several techniques can be used to test for a unit root in panel data.
Specifically, we are interested to test for non-stationarity against the
alternative that the variable is trend stationary. One of the first unit root
tests to be developed for panel data is that of Levin and Lin, as origi-
nally circulated in working paper form in 1992 and 1993. Their work
was published, with Chu as co-author, in 2002. Their test is based on
analysis of the equation:
Δyi ,t = α i + δ it + θt + ρi yi ,t −1 + ς i ,t , i = 1,2,… N , t = 1,2,… T . (1)
This model allows for two-way fixed effects (α and θ ) and unit-specific
time trends. The unit-specific fixed effects are an important source of
heterogeneity, since the coefficient of the lagged dependent variable
is restricted to be homogeneous across all units of the panel. The test
involves the null hypothesis H o : ρi = o for all i against the alterna-
tive H A : ρi = ρ < 0 for all i with auxiliary assumptions under the null
also being required about the coefficients relating to the deterministic
components. Like most of the unit root tests in the literature, LLC assume
that the individual processes are cross-sectionally independent. Given
this assumption, they derive conditions and correction factors under
which the pooled OLS estimate will have a standard normal distribution
under the null hypothesis. Their work focuses on the asymptotic distri-
butions of this pooled panel estimate of r under different assumptions
on the existence of fixed effects and homogeneous time trends. The LLC
test may be viewed as a pooled Augmented Dickey-Fuller (or ADF) test,

potentially with differing lag lengths across the units of the panel.
The Im-Pesaran-Shin test

Given the same equation:
Δyi ,t = α i + δ it + θt + ρi yi ,t −1 + ς i ,t ,
(2)
i = 1,2,… N , t = 1,2,… T .
The null and alternative hypotheses are defined as:
H 0 = ρi −0∀i
and
H A : ρi < 0, i − 1,2,… N1 : ρi − 0, i − N1 − 1, N1 − 2,… N
Thus, under the null hypothesis, all series in the panel are
non-stationary processes; under the alternative, a fraction of the series
in the panel is assumed to be stationary. This is in contrast to the LLC
test, which presumes that all series are stationary under the alterna-
tive hypothesis. The errors are assumed to be serially auto-correlated
with different serial correlation properties and differing variances across
units. IPS propose the use of a group-mean Lagrange multiplier statistic
to test the null hypothesis. The ADF regressions are computed for each
unit, and a standardized statistic is computed as the average of the LM
tests for each equation. Adjustment factors (available in their paper) are
used to derive a test statistic that is distributed as standard normal under
the null hypothesis.
IPS also propose the use of a group-mean t-bar statistic, where the
t statistics from each ADF test are averaged across the panel; again,
adjustment factors are needed to translate the distribution of t-bar into
a standard normal variate under the null hypothesis. IPS demonstrate
that their test has better finite sample performance than that of LLC.
The test is based on the average of the augmented Dickey-Fuller test
statistics calculated independently for each member of the panel with
appropriate lags to adjust for autocorrelation. The adjusted test statis-
tics – adjusted using the tables in Im, Pesaran and Shin (1995) – are
distributed as N(0,1) under the null of a unit root and large negative
values lead to the rejection of a unit root in favor of stationarity.
Panel cointegration tests

Cointegration analysis is carried out using a panel econometric approach.
Since the time series dimension is enhanced by the cross section, the anal-
ysis relies on a broader information set. Hence, panel tests have greater
power than individual tests and more reliable findings can be obtained. We
use Pedroni’s (1995, 1997) panel cointegration technique, which allows for
heterogeneous cointegrating vectors. The panel cointegration tests suggested
by Pedroni (1999) extend the residual-based Engle and Granger(1987)
cointegration strategy. First, the cointegration equation is estimated sepa-
rately for each panel member. Second, the residuals are examined with
respect to the unit root feature. If the null of no-cointegration is rejected, the
long-run equilibrium exists, but the cointegration vector may be different
for each cross section. Also, deterministic components are allowed to be
individual-specific. To test for cointegration, the residuals are pooled either
along the within or the between dimension of the panel, giving rise to the
panel and group mean statistics (Pedroni, 1999). In the former, the statistics
are constructed by summing both numerator and denominator terms over
the individuals separately while, in the latter, the numerator is divided by
the denominator prior to the summation. Consequently, in the case of the
panel statistics the autoregressive parameter is restricted to be the same for
all cross sections. If the null is rejected, the variables in question are cointe-
grated for all panel members. In the group statistics, the autoregressive
parameter is allowed to vary over the cross section, as the statistics amount
to the average of individual statistics. If the null is rejected, cointegration
holds at least for one individual. Therefore, group tests offer an additional
source of heterogeneity among the panel members.
Both panel and group statistics are based on Augmented Dickey-Fuller
(ADF) and Phillips-Perron (PP) methods. Pedroni (1999) suggests 4 panel
and 3 group statistics. Under appropriate standardization, each statistic
is distributed as standard normal, when both the cross section and the
time series dimension become large.
The asymptotic distributions can be stated in the form where
zi − μ N
z= (3)
ν
Z* is the panel or group statistic and N is the cross section dimen-

sion. μ and v arise from moments of the underlying Brownian motion
functionals. They depend on the number of regressors and whether or
not constants or trends are included in the cointegration regressions.
Estimates for μ and v are based on stochastic simulations and are reported
in Pedroni (1999). Thus, to test the null of no cointegration, one simply

computes the value of the statistic so that it is in the form of (1) above and
compares these to the appropriate tails of the normal distribution. Under
the alternative hypothesis the panel variance statistic diverges to positive
infinity and, consequently, the right tail of the normal distribution is
used to reject the null hypothesis. Consequently, for the panel variance
statistic, large positive values imply that the null of no-cointegration is
rejected. For each of the other six test statistics, these diverge to negative
infinity under the alternative hypothesis and, as such, the left tail of
the normal distribution is used to reject the null hypothesis. Thus, for
any of these latter six tests, large negative values imply that the null of
no-cointegration is rejected. The intuition behind the test is that using
the average of the overall test statistic allows more ease in interpreta-
tion: rejection of the null hypothesis means that enough of the indi-
vidual cross sections have statistics ‘far away’ from the means predicted
by theory if they were to be generated under the null.
Panel FMOLS
In the event the variables are cointegrated, to arrive at appropriate esti-
mates of the cointegration relationship, efficient estimation techniques
are employed. The appropriate estimation method is designed so that
the problems arising from the endogeneity of the regressors and serial
correlation in the error term are avoided. Due to the corrections, the
estimators are asymptotically unbiased. Especially, Fully Modified OLS
(FMOLS) is applied. In the model the asymptotic distribution of the OLS
estimator depends on the long-run covariance matrix of the residual
process. The estimates needed for the transformations are based on OLS
residuals obtained in a preliminary step. The panel FMOLS estimator is
just the average of individual parameters. The group mean FMOLS test
performs best when T is larger than N.
Panel causality in ECM framework

In a panel context, when we find evidence of cointegration, a moot issue
is determination of the direction of causality. The approach followed by
many authors in the panel context is to test for cointegration between
the variables under study. Once cointegration is found, a panel OLS is
performed to obtain the residuals of the parametric relationship between
the variables under study.
k k
ΔXit = a1 j + ∑ α1ij ΔXi , t − j + ∑ β1ij ΔYi ,t − j + λ1iecmit −1 + μ1it
j =1 j =1
k k
ΔYit = a1 j + ∑ α 2 ij ΔXi , t − j + ∑ β2 ij ΔYi ,t − j + λ 2iecmit −1 + μ1it
j =1 j =1
The lag of the residual so obtained constitutes the ECM term in the
estimation of (7) and (8). However, constructing the ECM term based
on the residuals from an OLS may not be appropriate as it is FMOLS
and not OLS, which is the appropriate estimation techniques when
there is evidence of panel cointegration amongst the variables under
study. As such, residuals from the panel FMOLS estimate is used to
construct the ECM term in the test for Granger causality in the panel
context. The estimated coefficients of β1ij and λ1i in (7) and α 2ij and
λ2i in (8) are used to infer about short-run and long-run causality.
Pedroni (2003) has established that if X and Y are truly cointegrated
we cannot have both λ1i and λ2i simultaneously zero. More specifi-
cally, if the hypothesis that β1ij is zero is rejected, we infer that there
is causality running from Y to X in the short run. Further, if the
hypothesis λ1i is zero is rejected, there is long-run causality from Y to
X. Similarly, in equation (8), a non-zero α 2ij would suggest short-run
causality running from X to Y and a non-zero λ2i would imply long-run
causality running from X to Y.
We consider per capita SDP, per capita health expenditure and the IMR
as the variables of interest for this study. While information on SDP and
health expenditure for the period 2000–12 is available for all the states,
information on IMR is available only for the period 2000–10. As such,
we have used the period for which consistent information on all the
three parameters of interest are available. We use three alternative tests to
study the unit root character of the variables in a panel context. Pedroni’s
method has been applied to study the cointegrating relationship between
the log of per capita SDP (LPSDP) and the log of per capita health expend-
iture (LPHE) and also between LPHE and IMR. Panel FMOLS estimates are
employed to decipher the pattern of elasticity amongst the two sets of
variables. Subsequently, we look into the causality between LPSDP and
LPHE and between LPHE and IMR from the panel data perspective.
6.4 Results
We first test the stationary property of the variables under consideration in

the panel context. We employ three different panel unit root tests to draw
robust inferences. The results of the panel unit root tests for each of our
variables are shown in table 1. In no case is the null hypothesis that every
state has a unit root for the series in log levels rejected. However, the series
is stationary in its first differences. Hence, the variables considered are:
I(1). Once ascertained that all three variables are I(1), we turn to the
question of possible cointegration between them. Table 2 reveals the
evidence regarding the cointegration property between output and
health expenditure, between health expenditure and IMR and also
between SDP and IMR for the Indian states. Pedroni (1999) shows that in
small samples of N and moderate samples of T, the group ADF statistics
has the best power. Though we get mixed results, the group ADF statis-
tics suggest that the null hypothesis of no cointegration between the
three sets of variables under consideration are rejected. Having found
evidence of panel cointegration, we obtain the FMOLS estimates. We
also compute the estimates obtained from standard OLS and fixed-effect
estimates to compare and contrast the elasticities. We report two sets of
results for SCS. One set of results pertains to all 11 SCSs and the second
set refers to nine states, excluding Mizoram and Nagaland, where IMR
has actually seen a rising trend in the post-2005 period.
GCS
We find that the elasticity of output to health expenditure is much
higher than elasticity of health expenditure to output. More impor-
tantly, the elasticity of IMR to health expenditure is higher than that of
SDP. Health expenditure has a direct connotation for improving health
outcome. However, growth affects IMR indirectly by creating fiscal space
for higher public spending on health and, indirectly, by enabling people
to spend from their purse on health-care facilities. The results point to
the need for prioritising public spending on health rather than relying
on the percolation effect of growth to improve health outcomes. We
also find that elasticity of SDP to IMR is much higher than elasticity
of IMR to SDP. This suggests that response of output is much higher to
improved health outcomes than output influencing health outcomes
through the direct and indirect channels.
Because health expenditure has a larger impact on health outcomes
and better health outcomes have, in turn, a larger impact on output, we
find the elasticity of output to health expenditure is much higher than
that of elasticity of health expenditure to output.
The causality tests indicate the presence of short-run causality only
from health expenditure to SDP. In no other case do we find evidence
of short-run causality. Health expenditure is endogenous to the system,
as it forms a part of the total government expenditure and, hence, the
short-run causality running from health expenditure to SDP is not a
Table 6.4 Responsiveness of health expenditure and IMR to SDP
SCS (Excluding Mizoram and

GCS Nagaland) SCS
RHS variable OLS FE FMOLS OLS FE FMOLS OLS FE FMOLS
Responsiveness of IMR to health expenditure and SDP

LHS variable – IMR
HE −0.676 −0.334 −0.4 −0.139 −0.123 −0.113 −0.214 −0.036 0.086
(−15.101) (−0.02) (−123.544) (−2.168) (−4.414) (−71.493) (−3.314) (−0.872) (−64.708)
SDP −0.56 −0.351 −0.344 −0.018 −0.175 −0.137 −0.069 −0.066 0.108
(−11.464) (−20.978) (−181.496) (−0.173) (−5.861) (−64.751) (−0.54) (−1.415) (-57.853)
Responsiveness of SDP to IMR and health expenditure
LHS variable – SDP
HE 0.928 0.963 1.134 0.451 0.792 0.842 0.429 0.779 0.853
(−25.97) (−25.165) (−0.288) (−10.754) −20.432 (−6.150) −11.317 (−21.06) (−6.108)
IMR −0.741 −2.045 −2.566 −0.016 −1.583 −2.699 −0.045 −0.27 −2.075
(−11.464) (−20.798) (−57.101) (−0.173) (−5.861) (−13.441) (−0.614) (−1.415) (−13.991)
Responsiveness of HE to SDP
LHS variable – HE
SDP 0.845 0.819 0.909 1.204 1.04 1.248 1.207 1.03 1.191
−25.976 −25.165 (−6.765) (−10.754) (−20.432) (−0.004) (−11.317) (−21.06) (−0.643)
Table 6.5 Panel causality tests
GCS SCS
Short Run Long Run Short Run Long Run
SDP → HE No Yes No Yes

HE → SDP Yes Yes No Yes
HE → IMR No Yes Yes Yes
IMR→ SDP No Yes No No
SDP→ IMR No Yes No Yes
Note: Based on 10 per cent level of significance.
very surprising result. We find absence of short-run causality from SDP

to health expenditure. Thus, the results indicate that competing claims
on expenditure at one end and lack of fiscal space might be preventing
an increase in health expenditure when SDP grows in the short run.
However, the long-run causality results indicate that, over time, an
increase in SDP leads to increased allocation for health. The more signif-
icant finding is that all the causality results hold in the long run.
This is also along the expected lines, as there are lags between health
expenditure and health outcome and between health outcome and its
impact on output. We find increase in SDP affects health outcome in the
long run. This could be because of the combined impact of increased
public expenditure on health, made possible from the rising output and
higher capability of people to spend from their pocket as incomes are
rising. An improvement in health status reflected through a decline in
IMR also positively impacts SDP in the long run. This could be again on
account of a number of reasons, such as improved labour productivity,
lower health related absenteeism and a higher savings rate because of a
greater incentive to save. The key take-away from the causality results
for the policy makers is that public spending on health is pro-growth
through its impact on health outcomes.
SCS
When we consider the FMOLS estimates of the responsiveness of IMR
to changes in health expenditure and SDP, we find positive coefficients,
which is counter-intuitive. However, we get negative and statistically
significant FMOLS estimates for the second set of SCS, which are along
the expected lines. Thus, the presence of Mizoram and Nagaland in the
data set used for estimation is influencing results for the entire panel. As
such, we base our inferences about responsiveness and causality based
on the smaller set of SCS.
Table 6.6 FMOLS estimates of health expenditure, health outcome and SDP
Response of Health Response of SDP to Response of IMR to
Expendi-ture to changes in Health Response of HE to changes in Health Response of IMR to Response of SDP to
State changes in SDP Expendi-ture Changes in IMR Expendi-ture changes in SDP changes in IMR
Dep Var – lphe Dep Var – lpsdp Dep Var – HE Dep Var – limr Dep Var – LIMR Dep Var – LPSDP
GCS
Andhra Pradesh 0.874 (−1.234) 1.125 (0.903) −2.577 (−9.661) −0.339 (−32.000) −0.303 (−89.381) −3.413 (−18.668)
Bihar 1.006 (0.042) 0.907 (−1.017) −3.155 (−4.407) −0.239 (−35.100) −0.278 (−42.699) −3.387 (−10.196)
Chhattisgarh 0.924 (−1.263) 1.068 (0.563) −2.5785 (−9.003) −0.362 (−24.197) −0.314 (−37.760) −3.015 (−12.119)
Goa 0.862 (−2.208) 1.160 (1.568) −1.346 (−16.956) −0.660 (−17.715) −0.606 (−25.682) −1.665 (−17.159)
Gujarat 0.787 (−2.563) 1.076 (0.390) −2.688 (−9.300) −0.279 (−32.703) −0.240 (−54.187) −4.337 (−13.538)
Haryana 0.950 (−0.515) 0.979 (−0.207) −3.761 (−16.441) −0.247 (−62.986) −0.249 (−93.172) −4.129 (−19.804)
Jharkhand 1.468 (1.932) 0.630 (−4.554) −3.808 (−4.155) −0.194 (−28.159) −0.295 (−29.367) −2.721 (−7.882)
Karnataka 0.901 (−1.044) 1.061 (0.405) −2.072 (−6.900) −0.388 (−19.815) −0.357 (−38.121) −2.897 (−10.926)
Kerala 0.867 (−3.247) 1.166 (2.624) 1.344 (0.350) 0.164 (−5.376) 0.089 (−7.988) 1.877 (0.792)
Maharashtra 0.716 (−4.807) 1.517 (2.702) −1.474 (−10.090) −0.667 (−17.166) −0.392 (−32.051) −2.414 (−13.811)
Madhya Pradesh 0.905 (−1.754) 1.101 (1.631) −2.551 (−41.643) −0.396 (−100.736) −0.365 (−56.628) −2.659 (−20.594)
Odisha 0.731 (−2.604) 1.319 (1.177) −1.989 (−9.760) −0.411 (−16.260) −0.292 (−58.382) −3.276 (−16.418)
Punjab 0.325 (−7.629) 2.366 (2.104) −0.572 (−6.759) −1.070 (−6.293) −0.470 (−34.373) −2.216 (−12.550)
Rajasthan 0.924 (−1.296) 1.067 (0.831) −2.370 (−9.204) −0.379 (−22.909) −0.351 (−37.092) −2.777 (−13.534)
Tamil Nadu 0.900 (−1.134) 1.064 (0.441) −1.327 (−18.979) −0.635 (−27.213) −0.602 (−39.398) −1.692 (−19.192)
Uttar Pradesh 1.616 (3.306) 0.576 (−11.128) −5.527 (−9.494) −0.187 (−53.280) −0.324 (−46.327) −2.994 (−15.066)
West Bengal 0.708 (−1.877) 1.108 (0.379) −1.146 (−5.421) −0.521 (−7.478) −0.509 (−25.419) −1.912 (−14.770)
Group 0.910 (−6.765) 1.135 (−0.288) −2.212 (−45.554) −0.400 (−123.544) −0.344 (−181.496) −2.566 (−57.101)
SCS
Arunachal Pradesh 1.100 (1.041) 0.823 (−2.355) −0.185 (−25.344) −4.304 (−5.563) −0.189 (−17.130) −3.586 (−4.958)
Assam 1.736 (2.690) 0.506 (−5.489) −0.138 (−53.637) −6.294 (−7.302) −0.234 (−34.239) −4.11 (−8.457)
Himachal Pradesh 0.768 (−6.992) 1.252 (4.609) −0.336 (−41.996) −2.932 (−12.012) −0.268 (−56.741) −3.777 (−13.541)
Jammu & Kashmir 1.612 (3.594) 0.574 (−7.203) −0.066 (−19.810) −2.582 (−1.227) −0.018 (−10.215) −0.911 (−1.045)
Manipur 1.86 (3.376) 0.46 (−5.660) 0.072 (−7.468) −0.137 (−1.330) −0.076 (−5.506) −0.696 (−4.095)
Meghalaya 0.886 (−1.450) 1.152 (1.092) −0.027 (13.307) 0.059 (−0.482) −0.013 (−14.388) −0.436 (−0.604)
Sikkim 0.775 (−6.938) 1.261 (5.665) −0.145 (−15.204) −3.014 (−2.744) −0.134 (−20.195) −3.874 (−2.585)
Tripura 1.603 (5.499) 0.626 (−8.604) −0.154 (−15.349) −2.959 (−2.237) −0.205 (−9.251) −2.131 (−3.125)
Uttarakhand 0.899 (−0.834) 0.971 (−0.503) −0.039 (−22.366) −3.878 (−1.584) −0.097 (−26.588) −4.773 (−1.914)
Group 1.249 (−0.005) 0.847 (−6.150) −0.113 (−71.493) −2.893 (−11.493) −0.137 (−64.751) −2.699 (−13.441)
Note: Figures in parentheses indicate t-values.

For SCS, we find elasticity of health expenditure to output is statisti-

cally not significant. However, elasticity of output to health expenditure
is positive and statistically significant.
Unlike the case for GCS, we find responsiveness of IMR to changes in
SDP turns out to be higher than that with respect to health expenditure.
However, as in the case of GCS, we find responsiveness of SDP with
respect to IMR is much higher than responsiveness of IMR to health
expenditure.
As far as causality is concerned, we find (unlike in the case of GCS)
causality from health expenditure to IMR is found both in the short run
as well as in the long run. However, unlike the case of GCS, we find lack
of long-run causality running from IMR to SDP for the SCS. This finding
requires further probes into the factors driving SDP in the SCS. All other
causality results for SCS follow the same pattern as for GCS.
6.5 Concluding observations
Though one of the chief concerns of the modern-day welfare state,

providing healthcare for all has long been a challenging task in India. India
missed out a good chance to reprioritise its spending towards health care
during the high-growth phase of 2003–4 to 2007–8. Now that growth pros-
pects have slowed down, there is a possibility of health care spending by
the government sector being squeezed. The 12th five-year plan has already
scaled down public spending on health to 1.58 per cent from 2.5 per cent
enunciated in the approach paper. Against this backdrop, the present study
analysed whether there is good enough reason to have, in public spending,
a bias towards health. The study considered the relationship between SDP,
public health expenditure and IMR for 17 states of India using panel esti-
mates for the period 2000–12. The broad finding of the empirical estimation
is that for the GCS, public spending on health influences health outcomes
more than it influences economic growth. The implication of this finding,
from a public policy perspective, is that instead of depending on growth,
intervention in the form of public spending on health has a larger impact
on health outcomes. However, while both growth and dedicated interven-
tion in terms of health expenditure positively influence health outcomes,
for the SCS the impact of growth turns out to be slightly more than that
of health expenditure. Unlike in the case of GCSs, where causality between
health expenditure was found only in the long run, for SCSs the causality is
found both in the short run and the long run. For the GCSs, which account
for roughly 90 per cent of the country’s population and GDP, we found that
the health status of the population significantly affects output. Thus, higher
public spending on health is not only pro-people but also pro-growth.
Annex 6. 1 Panel unit root tests
SCS Excluding Mizoram
GCS SCS
and Nagaland
Series
LLC
tips
ADF-Fisher
Chi-square
PP-Fisher
Chi Square
LLC
tips
ADF-Fisher
Chi-square
PP-Fisher
Chi Square
LLC
tips
ADF-Fisher
Chi-square
PP-Fisher
Chi Square
LPSDP 12.096 13.401 0.749 0.087 7.954 8.022 0.285 0.267 9.250 10.057 0.255 0.218
(1.000) (1.000) (1.000) (1.000) (1.000) (1.000) (1.000) (1.000) (1.000) (1.000) (1.000) (1.000)
Δ LPSDP −4.993 −1.528 55.475 95.821 −2.164 0.124 29.981 44.62 −2.080 0.142 26.834 41.476
(0.000) (0.063) (0.011) (0.000) (0.015) (0.549) (0.118) (0.003) (0.018) (0.558) (0.082) (0.001)
LPHE 10.285 11.374 1.436 1.041 5.904 8.405 0.874 0.651 −3.085 −1.274 29.614 0.391
(1.000) (1.000) (1.000) (1.000) (1.000) (1.000) (1.000) (1.000) (0.001) (0.101) (0.041) (1.000)
Δ LPHE −4.349 −1.247 51.395 56.223 −4.255 −1.846 39.733 54.418 5.546 8.178 0.412 43.730
(0.000) (0.106) (0.028) (0.009) (0.000) (0.032) (0.011) (0.000) (1.000) (1.000) (1.000) (0.000)
LIMR 4.153 7.536 14.212 9.376 −1.199 −0.568 27.882 24.446 −2.117 −1.016 26.140 22.646
(1.000) (0.000) (0.998) (1.000) (0.115) (0.284) (0.179) (0.324) (0.017) (0.154) (0.096) (0.204)
Δ LIMR −6.980 −3.305 71.586 83.079 −2.326 −1.495 31.801 54.869 −3.988 −2.475 35.017 34.973
(0.000) (0.000) (0.000) (0.000) (0.010) (0.067) (0.080) (0.000) (0.000) (0.006) (0.009) (0.009)
Note: Figures in brackets indicate p-values.

Assumption – Individual intercept included in test equation.
Schwarz criterion for Automatic Lag Selection.
Annex 6.2 Panel cointegration tests
SCS without Mizoram and

GCS SCS Nagaland
LPHE and LPHE and LPSDP and LIMR & LPHE & LSDP & LPHE & LPHE & LPSDP &
LPSDP LIMR LIMR LPHE LPSDP LIMR LPIMR LPSDP LIMR
panel – v 13.208 6.078 0.948 0.035 11.201 21.865 0.825 −1.091 −0.659
(0.000) (0.000) (0.171) (0.485) (0.000) (0.000) (0.204) (0.862) (0.745)
panel – rho 1.086 2.126 −0.45 1.103 0.564 1.517 0.991 0.037 1.353
(0.861) (0.983) (0.326) (0.865) (0.714) (0.935) (0.839) (0.514) (0.912)
panel – pp −3.103 −0.489 −2.921 −1.294 −5.342 0.122 −1.213 −4.291 −0.596
(0.001) (0.312) (0.001) (0.097) (0.000) (0.548) (0.112) (0.000) (0.275)
panel – ADF −4.289 −3.986 −5.475 −2.820 −5.390 −3.951 −1.974 −3.876 −2.514
(0.000) (0.000) (0.000) (0.002) (0.000) (0.000) (0.024) (0.000) (0.006)
Group – 2.742 3.241 1.183 2.267 2.063 2.970 2.014 1.098 2.527
rho (0.997) (0.999) (0.881) (0.988) (0.980) (0.998) (0.978) (0.863) (0.994)
Group – pp −2.937 −0.205 −2.389 −1.951 −6.121 −1.137 −2.024 −4.572 −0.123
(0.001) (0.418) (0.008) (0.025) (0.000) (0.127) (0.021) (0.000) (0.450)
Group – −3.288 −3.122 −4.912 −2.602 −3.763 −2.456 −1.767 −3.086 −2.427
ADF (0.000) (0.000) (0.000) (0.004) (0.000) (0.007) (0.038) (0.001) (0.007)
Assumption: Deterministic trend and intercept.

7
Credit and Growth
India has a bank-dominated financial system. The banking system

comprises commercial banks, cooperative banks, regional rural banks
(RRBs) and local area banks. As alluded to in Chapter 2, the drive for
financial inclusion was a game-changer initiative in the post-2000
period. While expansion of the banking footprint was the general policy
focus, concerted attempts were made to improve the financial health of
credit cooperatives and RRBs. Given their poor financial health, credit
cooperatives were recapitalized and RRBs of a particular sponsor bank
within a state were merged. The idea was that by improving their finan-
cial viability, these grass-roots level financial institutions can play a
more meaningful role in financial inclusion. In addition, some of the
initiatives to expand the reach of banking included the introduction
of no-frill accounts in 2005; permission for BC and BF models by lever-
aging technology; and setting targets for banks for embracing villages
with a population threshold. The government has also decided to intro-
duce new players in the banking space to give a further push to finan-
cial inclusion. Another dimension of policy concerning banks was the
thrust to increase the volume of agricultural credit. Towards this end,
government set targets for disbursal of agricultural credits to the banks.
As such, credit flow to agriculture increased from Rs. 229,401 crore in
2006–7 to Rs. 511,029 crore in 2011–12.
To improve the efficiency of the banking system, the most significant
initiatives have been in the domain of pricing. At one end, in 2011 the
central banks deregulated the last bastion of regulated interest rates and,
at the other, banks were asked to become more transparent in pricing
their loan products. Banks were asked to move to the base rate system
from the prevalent BPLR system to improve transparency in pricing. In
the erstwhile BPLR system, banks were provided with the flexibility to
187
lend at below PLRs, which led to unhealthy competition amongst banks

to attract the best customers and, in the process, the SME segment bore
the burden of subsidizing the large corporate business. This anomaly
was sought to be addressed through the base rate system in which banks
cannot price commercial loans below their base rate. The base rate
system was implemented in 2010.
A number of policy initiatives have been mooted in the post-2000
period for the different constituents. However, from a system point of
view, commercial banks not only have a dominant presence but are
also increasing their market share. As such, we consider the commercial
banks for analyzing the credit–growth relationship.
While denial of credit may have contributed to low productivity and
consequent poverty, it is also possible that poverty is the cause of finan-
cial exclusion. In a situation in which more than 25 per cent of the
population is below the poverty line, the demand-side factors are also
responsible for financial exclusion in India. The poor may not have
collateral to secure credit, might not meet the ‘know your customer’
norms to open a bank account, or could simply be unaware of the finan-
cial services. Financial institutions are also conservative in extending
their reach to hilly and sparsely populated areas with poor infrastructure.
Thus, both demand and supply-side factors are responsible for finan-
cial exclusion. The Committee on Financial Inclusion (CFI), which laid
down the blueprint for financial inclusion in India, has recognized both
the supply- and demand-side issues (GoI, 2008a). In this context, while
financial inclusion is a desirable goal in and of itself, it is debatable in
the context of growth. An important question that arises in the context
of the policy initiatives to expand the reach of banking is whether these
initiatives will have the desired growth-enhancing effect. This is because
expanding the reach may be counter to the business objective if the
expansion is driven by compliance to regulatory dictates rather than by
business considerations.
During 2001–4, credit growth averaged 17.6 per cent, in sharp contrast
to growth of 28.8 per cent during the 2004–8 before slowing down to 19
per cent during 2009–11 in the post-global financial crises period. Real
GDP growth during 2005–8 was 8.8 per cent, compared to 5.5 per cent
during 2001–4 and 7.8 per cent during 2009–11 The phenomena of lower
credit growth during times of economic slowdown and high growth
during times of economic boom raise the more important fundamental
question of whether credit follows output in the Indian economy or the
other way round. This leads us to the issue of causality between credit and
output. Further, it becomes important to ascertain the responsiveness of
Credit and Growth 189
output to credit and credit to output for necessary policy prioritisation

of pushing credit through the banks to give a fillip to growth or to focus
more on building the absorptive capacity of the states.
Against this backdrop, the present chapter will address two broad
issues. First, the temporal and spatial pattern of growth and credit allo-
cation during 2001–11 both at the national and the sub-national level.
Second, enquiry into the nature of the relationship between bank credit
and growth at the state level, separately for the GCS and the SCS. The
rest of the chapter is schematized as follows. Section 7.1 reviews the
major changes in the pattern of growth and credit allocation during
2001–11, classified into three sub-periods broadly corresponding to the
low-growth, high-growth and post-crisis period at the aggregate level.
Credit and output growth at the state level are discussed in Section 7.2.
Section 3 describes the credit and output shares at the state level. The
empirical framework to study the responsiveness of credit to output and
output to credit and the causality between credit and output and the
econometric findings are discussed in Section 7.4. Finally, Section 7.5
presents some concluding observations.
7.1 Growth of credit and credit allocation across sectors
As the outstanding credit figures are available in nominal terms, we

have used GDP at factor cost at current prices to represent output. As
discussed in Chapters 2 and 3, India’s real GDP grew at a much faster
pace during 2004–8 in the post-2000 period. For the purpose of analyzing
the growth pattern in the post-2000 period, we considered three sub-
periods corresponding to the relatively low-growth phase, 2000–3, to
the period of high growth, 2004–8, and the post-global financial crisis
period, 2009–11. We could have used the similar phases to study the
growth in credit. However, the credit figures for the newly created states
are available only from 2001 onwards. As such the beginning year for
the analysis is taken to be 2001. During 2001–4, credit growth averaged
17.6 per cent, in sharp contrast to the growth of 28.8 per cent during
2004–8, before slowing down to 19 per cent during 2009–11, in the post-
global financial crises period (Table 7.1). As the focus of this chapter is to
study the credit–growth relationship, we have used the classification of
sub-periods as 2001–4, the period of subdued credit growth; 2005–8, the
phase of rapid credit growth; and 2009–11, the phase corresponding to
the period after the financial crisis.
Compared to 2001–4, the credit growth was much higher for all the
sub-sectors during 2005–8. However, the increase in credit growth was
Table 7.1 Growth of output and credit
2001–4 2005–8 2009–11 2001–11
Agricultural Output 4.75 11.42 14.95 9.95

Agricultural Credit 20.62 30.12 19.04 23.64
Industrial Output 9.43 16.32 12.94 12.89
Industrial Credit 11.90 29.09 20.20 20.41
Services Output 10.93 15.74 17.36 14.43
Services Credit 22.41 28.27 18.25 23.40
Aggregate Bank Credit 17.64 28.76 19.04 22.06
GDP 9.17 14.98 16.03 13.15
Population 1.73 1.50 1.39 1.55
Source: Basic statistical returns of scheduled commercial banks, Reserve Bank of India (various
issues).
sharpest for the industry sector followed by agriculture and the services
sector. As far as growth of sectoral GDP in 2005–8 is concerned, industry
grew at the fastest pace, followed by services and agriculture. This was
in contrast to highest growth observed for the services sector during
2001–4, followed by industry and agriculture.
Because agriculture and services sectors output grew at a faster pace,
overall GDP growth was higher during 2009–11, compared to 2005–8.
In the post-crisis period of 2009–11, the services sector again posted
the highest growth, followed by agriculture and industry. Compared to
2005–8, there was a slowdown in credit growth in all the sectors during
2009–11. The slowdown was most significant for the agriculture sector,
followed by services and industry. The growth in sectoral credit and
output led to changes in the sectoral composition of output and credit
during 2005–8 and 2009–11, compared to 2001–4.
The services sector accounted for the largest portion, both in credit
and output, during 2001–4. Though industry receives a sizeable propor-
tion of the total credit, its share in total output was much less. The
agriculture sector, on the other hand, received only 10 per cent of the
total credit but accounted for a relatively larger proportion of output.
This gives a broad impression that the response of output to credit
would be the relatively higher for agriculture and relatively lower for
industry.
As far as sectoral composition of output was concerned, while share
of services sector increased and that of agriculture declined consistently
in the later two periods compared to 2001–4, industry’s share in GDP
increased during 2005–8, compared to 2001–4, but declined again in
the 2009–11 period (Table 7.2). In fact the decline in industry’s share
Table 7.2 Average shares of major sectors in output and credit 2001–11
2000–4 2005–8 2009–11 2001–11
Agricultural Output 22.46 18.60 17.75 19.57

Agricultural Credit 10.05 11.34 11.28 10.87
Industrial Output 19.68 20.42 19.35 19.88
Industrial Credit 42.16 38.17 39.97 39.72
Services Output 57.86 60.99 62.90 60.55
Services Credit 47.79 50.49 48.75 49.41
Source: Basic statistical returns of scheduled commercial banks, Reserve Bank of India (various
issues).
was more pronounced in the 2009–11 period, compared to its increase

during 2005–8. As such, the share of industry in GDP was lower during
2009–11, compared to what it was during 2001–4.
The share of services and agriculture in total credit increased, and that
of industry declined during 2005–8, compared to 2001–4. In the subse-
quent period, agriculture maintained its share but the services sector
underwent a decline. The decline in the share of the services sector in
the total credit was made up by an increase in the share of industry
during 2009–11. Notwithstanding the increase, the share of industry
during 2009–11 stands at a much lower level than what it was during
2001–4, as the decline was sharper during 2005–8.
As the services sector accounts for the largest share in total credit, it is
natural to look for sub-sectors within the services sector which sub-sectors
drawing credit. Within the services sector in 2000, trade credit accounted
for the highest share, at 36 per cent, followed by personal loans, at 26
per cent, while the loans to professionals accounted for only 7 per cent.
However, by 2011, we find the share of trade credit in total credit to
services was significantly reduced, at 18 per cent, while that for personal
loans and to professionals increased considerably to 36 per cent and 18
per cent, respectively (Table 7.3).
Seen in terms of different sub-periods, the share of professional,
personal and trade loans in the total services credit during the low-
growth phase 2000–4 was 9 per cent, 30 per cent and 30 per cent respec-
tively. In the high-growth phase of 2005–8 there was a rapid growth in
credit to professional and personal category taking their shares to 44
per cent and 12 per cent respectively. In the post-crisis period 2009–11,
the share of personal loans in total service credit declined to 36 per cent
though it still claims the largest share amongst services credit. While the
share of professional credit gradually increased in the subsequent two
Table 7.3 Growth and share of components in services 2001–11 (Per cent)
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Growth Transport 7.74 7.16 0.93 18.73 22.81 72.86 9.92 71.44 30.09 47.49 28.70
operators
Professional 31.25 44.04 22.40 29.55 25.81 48.14 48.35 54.19 32.67 22.91 20.54
and other
services
Personal loans 27.70 25.14 38.08 57.17 42.94 37.99 22.74 11.96 14.04 0.97 19.90
Trade 25.02 12.66 3.15 -2.51 27.81 15.85 36.40 3.75 30.41 10.21 9.09
Finance 20.95 42.18 34.65 16.43 24.27 29.79 30.34 37.59 10.62 28.88 44.31
All others 23.18 54.24 −6.54 −6.14 −2.39 32.71 −8.09 74.88 −31.65 29.79 68.18
Services 24.72 28.00 15.56 21.35 29.38 33.32 25.82 24.55 15.60 13.95 25.19
Share Transport 1.62 1.42 1.24 1.27 1.19 1.57 1.34 1.85 2.04 2.56 2.71
operators
Professional 3.57 4.22 4.49 4.99 4.80 5.41 6.24 7.75 8.72 9.13 9.03
and other
services
Personal loans 12.25 12.58 15.07 20.34 22.21 23.33 22.27 20.08 19.44 16.71 16.44
Trade 16.63 15.38 13.76 11.52 11.25 9.92 10.52 8.79 9.73 9.13 8.18
Finance 4.91 5.73 6.70 6.70 6.36 6.28 6.37 7.06 6.62 7.27 8.61
All others 7.51 9.50 7.71 6.21 4.63 4.68 3.34 4.71 2.73 3.02 4.17
Services 46.48 48.84 48.97 51.03 50.44 51.19 50.08 50.24 49.30 47.82 49.14
Source: Basic statistical returns of scheduled commercial banks, Reserve Bank of India (various issues).
periods, compared to 2000–4, to reach 18 per cent during 2009–11, that

of trade credit gradually declined to 18 per cent during 2009–11.
7.2 Credit–output growth at the state level
In this section, we look at the evolution of credit and output growth in

the three sub-periods separately for the GCS and the SCS.
GCS
For the GCS as a group, credit to both the agriculture and services
sectors grew at almost the same pace of more than 21 per cent during
2001–4. In contrast, credit growth to industry was much lower, at 11.4
per cent. Higher credit growth to agriculture, compared to industry is
observed for all states except Odisha and Goa. In Odisha, credit growth
to industry in Odisha was highest amongst all states within the GCS.
Credit growth to agriculture in Goa was the lowest amongst the three
sectors. Thus, higher credit growth to agriculture relative to industry
is pervasive across the states. Though credit growth to services was
marginally higher than that to agriculture at the group level, states
such as Gujarat, Maharashtra, Tamil Nadu and West Bengal experi-
enced higher credit growth in agriculture, compared to the services
sector. Thus, the majority of the states share the same credit-growth
pattern in agriculture versus services as what is observed at the group
level. Higher growth of services credit than industrial credit observed
at the group level is also found in a majority of the states, except in
Goa and Gujarat.
During 2005–8, credit growth to all three sectors accelerated, compared
to 2001–4. Agricultural credit growth was the highest, at 30.5 per cent,
followed by industry, at 29.4 per cent, and services at 27.8 per cent.
Though at the group level credit growth to agriculture outpaced that to
industry, at the individual states level the reverse pattern was observed in
nine states – Andhra Pradesh, Bihar, Chhattisgarh, Jharkhand, Karnataka,
Maharashtra, Madhya Pradesh, Punjab and Rajasthan. Further, eight-
states – Goa, Gujarat, Haryana, Kerala, Odisha, Tamil Nadu, Uttar Pradesh
and West Bengal – displayed higher growth in credit to services than to
industry, a pattern opposite to what was observed at the group level.
Moreover, in Andhra Pradesh, Jharkhand and Karnataka, credit to serv-
ices grew at a faster pace than credit to agriculture, though at the group
level agricultural credit grew at a higher pace than services credit.
Credit to agriculture continued to grow at the fastest pace, at 23 per
cent, followed by that to industry and services, at 20.2 per cent and
18.5 per cent, respectively, during 2009–11. However, we find devia-

tions in the inter-sectoral credit growth pattern for a number of states.
Contrary to what is observed at the group level, in five states – Bihar,
Madhya Pradesh, Punjab, Rajasthan and Uttar Pradesh – credit growth to
industry grew at a faster pace than that to agriculture. Similarly, in four
states – Haryana, Jharkhand, Kerala and Maharashtra – credit growth to
services outpaced that to industry. In Bihar, Haryana, Madhya Pradesh,
Maharashtra, Punjab and Uttar Pradesh, services sector credit grew at a
faster pace than agricultural credit.
At the group level it is observed that agricultural credit growth acceler-
ated in the 2005–8 phase, compared to 2001–4, and decelerated in the
2009–11 phase, compared to the 2005–8 phase. This pattern is observed
for most of the states, except Andhra Pradesh, Goa, Chhattisgarh,
Jharkhand, Odisha and West Bengal. While West Bengal had experi-
enced successive declines in credit growth to agriculture in the two sub-
periods following 2001–4, the remaining five states displayed successive
increases in credit growth during 2005–8 and 2009–11, compared to
2001–4.
Industrial growth accelerated during 2005–8, compared to 2001–4
for the GCS as a group, and this is also observed for 15 states. Only
Kerala and Odisha witnessed a deceleration in industrial credit growth
in 2005–8, compared to 2001–11. GCS as group experienced a decelera-
tion in industrial credit growth during 2009–11, compared to 2005–8.
This was also true for 12 states, not including Goa, Kerala, Odisha, Tamil
Nadu and Uttar Pradesh. Of these five states, Goa, Tamil Nadu and Uttar
Pradesh continued their growth acceleration from the previous period
whereas Kerala and Odisha had experienced deceleration in credit
growth during 2005–8, compared to 2001–4.
As in the cases of agriculture and industry, credit growth to serv-
ices accelerated in the 2005–8 phase, compared to 2001–4, and decel-
erated in the 2009–11 phase, compared to the 2005–8 phase. This
growth pattern of services credit across the three periods was shared
by 11 states. In four states – Chhattisgarh, Kerala, Madhya Pradesh
and Odisha – services credit decelerated, and in Punjab it accelerated
successively in the two sub-periods following 2001–4. Only in Haryana
did services credit gain momentum during 2009–11, after having decel-
erated during 2005–8.
Output
Output from agriculture, industry and services grew at a faster
pace in the 2005–8 period, compared to the 2001–4 period. Both
the agricultural and services sectors’ output continued to increase

at a faster pace, but growth of industrial output decelerated during
2009–11, compared to 2005–8. This was in contrast to growth of
credit, which accelerated across the sectors during 2005–8 and decel-
erated during 2009–11.
During 2001–4, industrial growth was slightly higher than that of
industry and agriculture grew at the slowest pace for the GCS as a group.
This pattern was also observed for 12 states. Of the remaining 5 states
we find in the cases of Gujarat, Madhya Pradesh, Odisha and Rajasthan
that agricultural growth was higher than that of the industry and serv-
ices sectors. In the case of Chhattisgarh, agricultural growth was slightly
below the industrial sector’s growth but much higher than the services
sector growth. Though at the group level, industrial growth was margin-
ally higher than that of services; eight states had higher services sector
growth than growth of industrial output.
During 2005–8, growth of output in all three sectors accelerated, with
growth of output from industry the highest, followed by that of serv-
ices and agriculture for the GCS as a group. However, in five states, the
services sector grew at a faster pace than did industry, and agricultural
growth was higher than growth of the industrial and services sectors for
Gujarat, Jharkhand, Maharashtra and Tamil Nadu.
During 2009–11, growth of agriculture increased significantly to 18.5
per cent, followed by growth of services and industry, at 17.9 per cent
and 14.8 per cent, respectively, for the GCS as a group. Higher growth
of the services sector, compared to industry, is observed for all states
except Tamil Nadu. However, higher agricultural growth, compared to
the industrial and services sectors’ growth, is observed for only seven
states.
The increase in growth momentum observed for the agriculture sector
in the two successive periods following 2001–4 at the group level was
shared by 11 states. Of the remaining six states, Madhya Pradesh and
Chhattisgarh witnessed growth acceleration during 2009–11, compared
to 2005–8. However, they had a deceleration of agricultural growth
during 2005–8, compared to 2001–4. In contrast, Haryana, Jharkhand,
Odisha and Punjab displayed just the reverse in agricultural growth
across the different sub-periods.
Industrial growth gaining momentum during 2005–8 and deceler-
ating during 2009–11 was observed for the GCS as group. This pattern
was shared by 12 states. Of the remaining five, Haryana and Jharkhand
witnessed growth acceleration during 2009–11, but industrial growth
in these two states decelerated during 2005–8. Kerala, Tamil Nadu and
West Bengal improved their growth momentum in the two successive

Except for Chhattisgarh, Goa, Karnataka and Tamil Nadu, all the
states exhibited successive growth acceleration of the output from serv-
ices sector in the two sub-periods following 2001–4, a pattern observed
at the group level. These four states witnessed growth deceleration in
the services sector in the 2009–11 period, compared to 2005–8.
SCS
Credit
During 2001–4, credit to the services sector grew at the fastest pace,
followed by agriculture and industry at the group level. This pattern was
observed only for six states. Himachal Pradesh, Sikkim and Nagaland had
the highest growth in credit to the services sector, followed by industry
and agriculture. Meghalaya had the highest growth in industrial credit,
followed by credit to agriculture and services in descending order. Assam
had the highest growth of agricultural credit, followed by services credit
and industrial credit in descending order.
Growth of agricultural and industrial credit accelerated and serv-
ices credit decelerated during 2005–8, compared to 2001–4. However
credit growth was highest for agriculture, followed by services and
industry for the SCS as a group. At the level of states this pattern was
observed for only five: Assam, Himachal Pradesh, Manipur, Meghalaya
and Tripura. The rest of the states show a varied pattern in the growth
of credit to the different sectors. For instance, services credit growth
was higher than agricultural credit growth for three states, and indus-
trial credit growth was higher than agricultural credit growth for two
states.
During 2009–11 agricultural credit grew at the fastest pace, followed
by the industrial and services sectors’ credit at the group level. The states
displayed a varied pattern in the relative credit growth to agriculture,
industry and services. Agricultural credit grew at a higher pace than did
industrial credit in six states, and industrial credit grew at a higher pace
than services credit for five states.
If we look at the evolution of agricultural credit growth for SCS as
a group, across the sub-periods we find that agricultural credit growth
accelerated during 2005–8, compared to 2001–4, and decelerated during
2009–12, compared to 2005–8. This pattern was shared by eight states.
However, in Himachal Pradesh and Meghalaya, agricultural credit growth
decelerated successively in the two sub-periods following 2001–4. For
Mizoram, agricultural credit decelerated during 2005–8 and accelerated

during 2009–11.
Industrial credit accelerated during 2005–8 and continued to grow at
the same pace during 2009–11, compared to their respective previous
sub-periods. We find that growth of industrial credit accelerated for
eight states during 2005–8, compared to 2001–4. However, for seven
states it decelerated during the 2009–11 period, compared to the 2005–8
period. Credit growth to the services sector decelerated marginally
during 2005–8 and significantly during 2009–11, compared to their
respective previous sub-periods at the group level. Services credit growth
decelerated for six states and nine states during the phases of marginal
and significant deceleration, respectively.
Output
During 2001–4, the industrial sector grew at the fastest pace, followed
by services and industry for the SCS as a group. This pattern was also
observed for seven states. Of the remaining four states, we find Jammu
and Kashmir had the highest growth in agriculture, followed by serv-
ices and industry. In Manipur, Nagaland and Sikkim, the services sector
grew at the fastest pace, followed by agriculture and industry. During
2005–8, the services sector grew at the fastest pace, followed by industry
and agriculture for the SCS as a group. This pattern was observed only
for three states within the SCS. Though industrial growth was higher
than that of agriculture for ten states, the services sector growth was
higher than that of industry for only three states. The sectoral growth
of Assam, which had the largest share in the combined output of SCS,
influenced that of the group. Output from all the sectors accelerated
during 2009–11, but the services sector grew at the fastest pace, followed
by industry and agriculture for the SCS as a group. However, this pattern
is observed for only six states. For Mizoram, Sikkim and Tripura, indus-
trial output grew at the fastest pace, followed by services and industry.
In Arunachal Pradesh and Assam, agricultural output grew at the fastest
pace, followed by services and industry.
Agricultural growth accelerated successively in the two sub-periods
following 2001–4 for the SCS as a group. This pattern is observed for
only four states: Arunachal Pradesh, Assam, Mizoram and Uttarakhand.
While agricultural growth improved for only five states in 2005–8,
compared to 2001–4, it improved for ten states in 2009–11, compared to
2005–8. Industrial growth marginally decelerated in 2005–8 and acceler-
ated during 2009–11, compared to their respective previous sub-periods
for the SCS as group. However, this pattern was observed for only three
states. Industrial growth was higher in the 2005–8 period, compared to

2001–4, for seven states. Further, higher industrial growth in 2009–11,
compared to 2005–8, was observed for six states. Successively higher
services sector growth in the two sub-periods following 2001–4, observed
at the group level, was shared by eight states. Services output growth for
Assam and Nagaland, however, accelerated during 2005–8 and deceler-
ated during 2009–11. In the case of Tripura, growth of services output
decelerated during 2005–8 but accelerated during 2009–11.
7.3 Shares of different sectors in credit and output
Credit
GCS
During 2001–4, the share of services credit was the highest, followed by
that of industrial credit and agricultural credit for the GCS as a group.
This pattern was shared by 13 states. Four states displayed a different
sectoral composition of credit. The share of industrial credit in total
credit was higher than that of services credit for three states: Gujarat,
Haryana and West Bengal. In Bihar, services credit accounted for 62 per
cent, followed by 21.9 per cent for agriculture and 16.6 per cent for
industry.
The sectoral composition of credit at the group level remained the
same in the subsequent two sub-periods, though the actual shares of
different sectors changed. Most of the states within the GCS shared this
broad sectoral composition. Bihar and Gujarat were the exceptions to
this sectoral composition during 2005–8. These two states had a higher
share of industry in the total credit, followed by that of services and agri-
culture. This sectoral composition of credit was also observed for Punjab
in addition to Bihar and Gujarat during 2009–12.
At the broad group level, the share of agriculture increased during
2005–8 to 12.2 per cent, from 11 per cent during 2001–4, and was
maintained at the same level during 2009–12. During 2005–8, the
share of agriculture increased for 14 states, with the exception of
Karnataka, Odisha and Rajasthan, compared to 2001–4. Between these
three states only Karnataka had a relatively larger share of agricul-
ture in total credit. The share of agriculture in total credit increased
for six more states in addition to these three states, during 2009–12,
compared to 2005–8.
The share of industry in total credit declined during 2005–8, compared
to 2001–4 at the group level. This is also observed for all states, except
Bihar, Chhattisgarh, Punjab, Odisha and Rajasthan. The share of industry

in total credit increased at the group level during 2009–11, compared to
2005–8, and this is observed for ten states.
As far as services credit is concerned, its share increased during
2005–8, compared to 2001–4 at the group level, and declined in
the 2009–11 period, compared to the 2005–8 period. This pattern is
observed for 11 states. In states such as Bihar, Chhattisgarh, Punjab,
Rajasthan and Odisha, the share of services in total credit declined
and, in the case of Goa, increased successively in the two sub-periods
following 2001–4.
SCS
The share of services in the total credit was highest, followed by that of
industry and agriculture during 2001–4 at the group level. This pattern
was shared by all states, with the exception of Tripura. In Tripura, serv-
ices accounted for the largest share in credit, followed by agriculture and
industry. The sectoral composition of credit during 2005–8 and 2009–11
was similar to that observed during the 2001–4 period at the group level.
This pattern was also observed for nine states during 2005–8 and eight
states during 2009–11.
The share of agriculture in total credit increased successively in the two
sub-periods following 2001–4 at the group level. However, this pattern
is observed only for five states. For Arunachal Pradesh and Nagaland the
share of agriculture in total credit declined successively in the two sub-
periods following 2001–4. In Meghalaya, Sikkim and Tripura the share
of agriculture in total credit declined in the 2005–8 period and increased
during 2009–11, compared to their respective previous sub-periods. Only
for Mizoram, the share of agriculture increased during the period 2005–8,
compared to 2001–4, but declined during 2009–11, compared to 2005–8.
As far as share of industry in total credit is concerned, it increased
marginally during 2005–8, compared to 2001–4, and declined significantly
during 2009–11, compared to 2005–8 at the group level. This pattern is
observed for six states. In Arunachal Pradesh, Sikkim and Tripura the
share of industry declined during 2005–8 but increased during 2009–11,
compared to the respective previous sub-periods. In Assam and Mizoram,
the share of services in total credit declined successively during 2005–8
and 2009–11, compared to 2001–4.
The share of services in total credit declined during 2005–8, compared
to 2001–4 for the SCS as a group as well as for five states. However, during
2009–11 the share of services in total credit increased at the group level
as well as for eight states.
Output
GCS
During 2001–4, the share of services in the SDP was highest, followed
by industry and agriculture at the group level for the GCS. This sectoral
composition of output is also observed for ten states. For Andhra
Pradesh, Bihar, Punjab, Uttar Pradesh and Bengal, the share of agri-
culture was higher than that of industry, though services accounted
for the highest share in output. Only in Jharkhand did industry
account for the largest share in the output, followed by services and
agriculture.
During 2005–8, ten states had the same sectoral composition of
output as observed at the group level. However, during both 2005–8
and 2009–11 in states such as Bihar, Uttar Pradesh, Punjab and West
Bengal, services had the largest share in output, followed by services and
industry. In Chhattisgarh, Goa and Jharkhand during both 2005–8 and
2009–11, industry had the largest share in output, followed by services
and agriculture.
The share of agriculture in SDP successively declined in the two
sub-periods following 2001–4 at the group level. This pattern is also
observed for 14 states. However, in Rajasthan, Uttar Pradesh and Tamil
Nadu, the share of agriculture declined in the 2005–8 period, compared
to the 2001–4 period, but it increased in the 2009–11 period, compared
to the 2005–8 period.
The share of industry increased in the 2005–8 period, compared to the
2001–4 period at the group level, and also for all states except Jharkhand.
Industry’s share in output, however, declined marginally during 2009–11
period and this pattern was shared by 11 states.
The share of services in SDP remained same in the 2005–8 period,
compared to the 2001–4 period at the group level. However, for nine
states the share of services in SDP actually increased during 2005–8,
compared to the 2001–4 period. The share of services increased during
the 2009–11 period, compared to the 2005–8 period, and this pattern is
observed for 14 states.
SCS
Services had the largest share in SDP, followed by agriculture and
industry at the group level during 2001–4. This pattern was also
displayed by seven states. In Himachal Pradesh, Manipur and Sikkim,
services accounted for the largest share, followed by industry and

agriculture. Only in Arunachal Pradesh did agriculture have the
largest share, followed by services and industry. Though services
continued to have the largest share in output, industry had a larger
share than agriculture in SDP during 2005–8 at the group level. This
pattern was shared by six states. Services had the largest share in
output, followed by that of agriculture and industry for four states:
Arunachal Pradesh, Assam, Mizoram and Nagaland. In Himachal
Pradesh, industry had the largest share in output, followed by serv-
ices and agriculture. The sectoral composition of credit at the group
level, observed during 2005–8, remained the same during 2009–11,
though the actual shares of different sectors changed. The same
sectoral composition was observed for nine states. In Assam and
Nagaland, the services sector had the largest share in SDP, followed
by agriculture and industry.
The share of agriculture in SDP successively declined in the two
sub-periods following 2001–4 at the group level. This pattern is also
observed for all states, except Manipur. In Manipur, the share of agri-
culture declined in the 2005–8 period, compared to the 2001–4 period,
but it increased subsequently in the 2009–11 period, compared to the
2005–8 period.
The share of industry in SDP successively increased in the two sub-pe-
riods following 2001–4 at the group level. This pattern is also observed for
all states except Assam and Manipur, where the share of industry in SDP
declined in the 2009–11 period, compared to the 2005–8 period, though
it increased in the 2005–8 period, compared to the 2001–4 period.
The share of services in SDP marginally declined in the 2005–8 period,
compared to the 2001–4 period at the group level. However, for five
states the share of services in SDP actually increased during 2005–8,
compared to the 2001–4 period. The share of services increased during
the 2009–11 period, compared to the 2005–8 period, and this pattern is
observed for all states except Sikkim.
7.4 Methodology and empirical results
We use the methodology of the previous chapter to study the relation-

ship between credit and output. We consider the sectoral as well as the
aggregate credit and output. Specifically, we have analysed separately
the relation between credit and output for agriculture, industry and the
services sector in addition to that between SDP and total credit.
We first test the stationary property of the variables under considera-

tion in the panel context. We employ a battery of panel unit root tests to
draw robust inferences. The results of the panel unit root tests for each
of our variables are shown in Annex 7.1. The results from the majority
of the unit root tests suggest that for none of the eight variables, the
null hypothesis that every state has a unit root for the series in log levels
is rejected. However, the series are found to be stationary in their first
differences. Hence, the variables considered are I(1). This holds for both
the GCS and the SCS. Once it is ascertained that all the eight variables
are I(1), we turn to the question of possible co-integration between credit
and output, both at the sectoral as well as the aggregate level. Annex
7.2 reveals the evidence regarding the cointegration property between
output and credit. Pedroni (1999) shows that, in small samples of N
and moderate samples of T, the Group ADF statistics has the best power.
Though we get mixed results, the Group ADF statistics suggest that the
null hypothesis of no cointegration between the four set of variables
under consideration are rejected, both the GCS and the SCS. Having
found evidence of panel cointegration, we obtain the FMOLS estimates.
We also compute the estimates obtained from standard OLS and Fixed
Effect estimates to compare and contrast the elasticities.
Response of credit to output and output to credit

GCS
At the aggregate level, FMOLS estimates are the most conservative, and
FE estimates the most liberal, in ascertaining the impact of output on
credit. However, the OLS estimates turn out to be most conservative and
FMOLS estimates turn out to be most liberal in assessing the impact of
credit on output. However, we concentrate on the FMOLS estimates to
comment on the responsiveness of output to credit and vice versa, as they
are the more appropriate estimates in a non stationary panel context.
The FMOLS estimates suggest that the responsiveness of aggregate credit
to SDP is much higher than the responsiveness of output to aggregate
credit. At the sectoral level, the responsiveness of credit to output is
highest for the agricultural sector, followed by services and industry. As
far as responsiveness of output to credit is concerned, industry occupies
the top position, followed by services and agriculture.
SCS
At the aggregate level, FMOLS estimates are the most liberal in assessing
the impact of credit on output and output on credit. This is also applicable
Table 7.4 Responsiveness of output to credit and credit to output – alternate

estimates
OLS FE FMOLS
RHS Variable GCS SCS GCS SCS GCS SCS
LHS variable – credit (TCAS)
SDP 1.508 1.668 1.572 1.768 1.501 1.890
(35.799) (14.139) (51.717) (19.802) (27.200) (10.985)
LHS variable – SDP
TCAS 0.579 0.375 0.602 0.442 0.643 0.488
(35.799) (14.139) (55.717) (19.802) (−65.656) (−48.630)
LHS variable – LPACS
LPAGRI 1.640 1.397 1.992 2.989 2.083 3.364
(18.851) (6.714) (29.750) (18.695) (23.946) (19.946)
LHS variable – LPAGRI
LPACS 0.400 0.196 0.421 0.254 0.453 0.272
(18.851) (6.714) (0.000) (18.695) (−68.476) (−89.994)
LHS variable – LPICS
GCS SCS GCS SCS GCS SCS
LPIND 1.229 0.425 1.310 1.309 1.382 1.250
(22.750) (11.961) (33.485) (14.770) (32.808) (4.234)
LHS variable – LPIND
LPICS 0.598 0.383 0.663 0.509 0.729 0.581
(22.750) (11.961) (33.485) (14.770) (−50.516) (−19.214)
LHS variable – LPSCS
LPSERV 1.467 1.433 1.546 1.808 1.401 1.811
(45.327) (11.779) (45.364) (19.340) (15.863) (10.946)
LHS variable – LPSERV
LPSCS 0.625 0.375 0.603 0.428 0.649 0.509
(45.327) (11.779) (48.364) (19.340) (−35.982) (−45.722)
at the sectoral level, except in the case of impact of output on credit in

the industry sector. The FMOLS estimates (as is the case for GCS) suggest
higher responsiveness of output to credit than that of credit to output
at the aggregate level. At the sectoral level, the pattern for SCS is similar
to that of the GCS.
Causality between output and credit

The study of causality between credit and output in a panel context has
been performed using the methodology already discussed in Chapter 6.
GCS
The results suggest the presence of bidirectional causality between credit
and output at the aggregate level, both in the short run and the long run
Table 7.5 Causality results between output and credit
SCS GCS
Short run Long run Short run T-stat Long run T-stat
Causality (p-value) (p-value) (P-value) (P-value)
SDP → TCAS No (0.465) Yes (0.000) Yes (0.036) Yes (0.000)

TCAS → SDP Yes (0.027) Yes (0.000) Yes (0.001) Yes (0.000)
AGRI → ACS Yes (0.098) Yes (0.000) Yes (0.046) Yes (0.014)
ACS → AGRI No (0.158) Yes (0.000) Yes (0.002) Yes (0.000)
IND → ICS No (0.563) Yes (0.000) No (0.359) Yes (0.000)
ICS → IND No (0.188) Yes (0.000) Yes (0.074) Yes (0.002)
SERV → SCS Yes (0.071) Yes (0.009) No (0.349) Yes (0.000)
SCS → SERV Yes (0.012) Yes (0.000) Yes (0.000) Yes (0.000)
for the GCS. At the sectoral level, we find long-run bidirectional causality
between credit and output for all three sectors for the GCS. However, in
the short run, bidirectional causality is found only for the agriculture
sector. In the case of industry and services, causality is observed only
from credit to output.
SCS
For the SCS there is long-run bidirectional causality between credit and
output at the aggregate level. However, short-run causality is unidirec-
tional from credit to output. Further, as in the case of GCS, long-run
bidirectional causality is observed in all three sectors. As far as short
run causality is concerned we find three noticeable features. First, there
is an evidence of bi-directional causality in the short run for the serv-
ices sector. Second, there is no evidence of causality between credit and
output in the short run. Third, we find evidence in favour of uni-direc-
tional causality from output to credit in the agricultural sector.
7.5 Conclusion
Apart from discussing policy initiatives in the banking space, this

chapter discussed the changes, during 2001–11, in the temporal and
spatial pattern in growth and credit, classified into three sub-periods
broadly corresponding to the low-growth, high-growth and post-crisis
periods, separately for the GCS and SCS. The analysis was carried out
both at the aggregate and sectoral levels. The government and the
central bank have taken a number of initiatives in the post-2000 period
to promote financial inclusion. Financial inclusion is a desirable goal

in itself. However, the sustainability of the various financial inclusion
initiatives, at a broad level, would be guided by the nature of the credit–
output relation. If credit has a larger impact on output, expanding the
reach of banking will have a growth-augmenting effect. On the other
hand, if output has a larger impact on credit, having merely the pres-
ence of banks will not have a large impact in increasing growth. Against
this backdrop, the present chapter analysed the credit and growth rela-
tionship separately for the GCS and the SCS during 2001–11. Empirical
estimates provide evidence in favour of long-run bidirectional causality
between credit and output at the aggregate as well as sectoral levels.
However, responsiveness of credit to output is much higher than the
responsiveness of output to credit, both for the GCS and SCS at the
aggregate level. At the sectoral level, the responsiveness of credit to
output is highest for the agricultural sector. Further, the responsive-
ness of output to credit is lowest in the case of agriculture. The govern-
ment has been setting higher targets in disbursal of agricultural credit
from year to year under the belief that the lack of available credit is the
biggest impediment to enhancing agricultural production. The empir-
ical results, however, suggest that credit flow is constrained by poor
agricultural sector growth. Without the necessary absorptive capacity,
regulatory prescriptions to expand the reach of banking may not turn
out to be sustainable.
Annex 7.1 Credit-SDP growth 2001–4
Credit Output
State
Agriculture
Industry
Services
Transport
Professional
Personal
Trade
Total Credit
Agriculture
Industry
Services
SDP
Andhra Pradesh 18.7 11.6 24.8 23.0 20.9 38.5 9.7 19.2 4.9 10.4 11.2 9.2
Bihar 12.6 7.3 26.5 0.1 15.1 33.9 15.0 20.2 1.6 5.1 8.6 5.7
Chhattisgarh 20.9 1.3 36.4 −1.8 72.2 45.3 13.2 18.3 17.6 17.7 9.0 14.0
Goa 8.8 14.1 13.2 33.2 16.7 33.2 −5.9 13.5 7.3 16.9 7.6 11.5
Gujarat 19.1 16.6 14.0 2.2 29.7 33.7 19.8 16.0 19.5 15.2 12.6 14.8
Haryana 26.2 8.9 32.5 4.2 55.1 38.8 13.2 19.7 5.1 16.0 14.6 12.3
Jharkhand 3.5 −3.3 26.7 −4.7 19.9 35.7 10.7 11.1 4.7 15.1 6.2 9.6
Karnataka 22.1 16.5 30.7 4.7 30.7 43.5 13.7 24.0 −10.4 13.2 12.1 6.6
Kerala 19.9 12.0 22.6 1.4 29.0 33.7 11.5 19.7 6.2 9.8 11.6 10.1
Maharashtra 25.0 9.6 16.2 7.6 31.2 43.8 12.2 13.5 7.6 10.8 11.0 10.4
Madhya Pradesh 20.3 −2.0 22.6 −5.7 11.6 35.6 5.5 13.4 13.4 5.7 6.5 8.2
Orissa 11.1 26.9 32.1 9.0 19.2 43.6 13.7 27.6 13.0 11.5 10.5 11.5
Punjab 16.5 8.3 17.6 −10.3 29.9 39.0 8.3 14.1 2.6 6.0 9.1 6.1
Rajasthan 19.8 14.7 24.2 15.2 30.7 33.4 7.2 20.2 10.1 8.8 8.5 9.1
Tamil Nadu 24.7 11.1 23.8 2.4 32.4 43.7 9.0 18.2 −6.9 6.5 9.4 6.1
Uttar Pradesh 21.1 10.4 22.5 −20.3 36.7 43.6 8.5 18.4 5.8 6.6 10.0 7.8
West Bengal 38.8 15.9 22.0 19.9 24.6 28.6 9.2 19.9 5.9 12.2 10.1 9.3
GCS 21.3 11.4 21.4 6.5 29.4 39.5 11.0 17.2 5.6 10.6 10.4 9.2
Arunachal Pradesh 22.0 0.4 28.3 −3.1 74.8 48.9 1.4 21.5 3.3 20.2 7.1 8.6
Assam 23.4 −6.1 18.8 5.8 21.0 41.2 12.7 9.8 2.4 21.2 8.5 9.2
Jammu & Kashmir 17.3 14.9 22.7 26.3 11.5 32.4 9.3 21.1 11.9 8.9 9.7 10.2
Manipur −1.0 −9.2 17.7 −13.8 10.7 48.2 6.5 10.6 8.2 14.9 4.8 8.1
Meghalaya 35.8 128.2 27.6 7.9 −21.3 55.7 13.5 58.5 7.1 11.8 9.8 9.7
Mizoram 10.1 −3.1 41.1 53.4 3.2 56.9 7.3 32.5 7.7 13.2 10.4 10.3
Nagaland −0.8 7.3 22.3 8.9 40.4 32.9 5.6 15.6 13.9 16.6 10.2 12.3
Sikkim 27.4 35.1 42.7 24.5 22.0 57.2 10.5 40.1 11.1 17.2 10.3 12.2
Tripura 8.8 6.9 25.4 37.9 34.0 38.7 5.6 20.4 9.6 12.0 10.5 10.6
Uttarakhand 20.5 12.9 27.7 4.7 23.0 38.4 10.4 22.1 6.1 19.9 12.6 12.6
SCS 21.9 14.2 25.0 14.3 21.2 37.8 11.0 21.5 6.8 14.5 9.1 9.7
Credit Output
State
Agriculture
Industry
Services
Transport
Professional
Personal
Trade
Total Credit
Agriculture
Industry
Services
SDP
Andhra Pradesh 26.9 31.4 27.0 19.5 49.4 25.7 20.6 28.4 14.7 22.4 16.5 17.5
Bihar 34.2 53.3 29.2 11.7 53.3 32.0 16.9 35.0 10.5 22.2 14.2 14.3
Chhattisgarh 35.9 36.5 33.4 52.0 69.4 37.8 19.3 35.0 17.4 22.8 16.3 19.4
Goa 32.1 20.0 20.8 10.1 23.9 22.1 18.5 20.7 10.6 17.5 14.2 15.4
Gujarat 52.2 30.6 36.2 26.1 55.2 36.2 20.2 35.2 20.7 17.2 16.0 17.3
Haryana 32.1 27.1 27.7 69.7 56.4 21.2 20.7 28.3 17.0 13.4 18.9 16.7
Jharkhand 19.1 34.8 23.9 36.5 68.8 20.6 17.0 27.1 15.1 8.6 14.9 11.8
Karnataka 25.6 34.1 32.7 49.7 54.4 25.1 18.4 32.2 12.8 20.0 17.4 17.4
Kerala 39.7 11.2 21.7 26.3 18.4 23.4 14.1 22.0 9.4 14.3 14.4 13.5
Maharashtra 27.9 31.5 27.5 55.9 58.8 23.0 16.9 29.3 22.1 21.6 15.9 18.3
Madhya Pradesh 22.8 26.1 18.1 36.6 45.4 17.1 14.3 21.4 9.1 16.1 13.4 13.0
Orissa 31.4 14.1 19.4 33.5 35.4 13.7 22.2 18.9 18.8 22.6 15.1 18.6
Punjab 30.1 39.3 29.2 61.1 97.6 12.3 15.7 32.9 14.8 21.6 14.3 16.4
Rajasthan 32.0 34.6 26.4 53.1 46.5 26.0 17.4 30.3 15.0 16.5 15.3 15.6
Tamil Nadu 29.7 23.2 29.2 48.3 37.8 28.1 20.1 26.9 20.1 16.8 17.1 17.3
Uttar Pradesh 27.5 24.3 25.8 36.5 43.5 25.5 15.6 25.8 9.8 17.9 14.1 13.8
West Bengal 34.8 24.0 27.1 30.6 43.8 18.8 14.3 26.2 11.5 12.3 13.7 12.9
GCS 30.5 29.4 27.8 44.7 51.0 24.4 17.6 28.7 14.5 18.2 15.6 16.1
Arunachal Pradesh 44.5 39.8 61.7 18.2 −0.1 38.0 12.5 57.5 10.2 11.2 12.0 11.1
Assam 34.2 17.8 31.3 17.9 37.6 29.7 14.6 28.0 9.8 4.4 13.0 9.9
Himachal Pradesh 22.9 11.0 19.0 −3.4 13.9 18.6 13.5 16.2 7.7 14.0 13.0 12.1
Jammu & Kashmir 53.7 25.8 15.4 4.5 12.9 30.6 15.5 19.9 5.2 13.3 12.5 10.8
Manipur 53.3 −10.4 33.2 25.5 40.3 34.9 10.9 27.8 8.2 9.4 10.4 9.5
Meghalaya 33.6 −33.6 −4.6 −12.3 −4.3 −8.5 20.0 −17.1 12.4 20.7 12.0 14.5
Mizoram 4.3 17.3 32.4 −7.8 119.8 33.1 14.9 25.8 8.1 18.4 12.1 12.3
Nagaland 62.6 58.8 51.7 29.4 60.4 51.9 14.1 54.4 2.5 16.9 15.1 11.3
Sikkim 35.6 120.3 35.8 2.8 71.3 27.8 12.9 44.3 8.2 14.0 13.1 12.5
Tripura 34.9 19.4 30.2 14.4 39.4 32.8 9.9 29.7 6.5 12.3 10.5 10.0
Uttarakhand 29.2 27.3 26.0 18.8 61.8 21.1 29.3 26.8 9.4 33.3 21.6 22.8
SCS 32.2 15.3 23.3 7.6 21.6 25.1 14.3 21.8 8.0 10.6 12.6 10.8
Credit Output
State
Agriculture
Industry
Services
Transport
Professional
Personal
Trade
Total Credit
Agriculture
Industry
Services
SDP
Andhra Pradesh 27.2 26.3 15.0 35.4 14.2 15.4 14.1 21.2 15.5 16.8 18.8 17.5
Bihar 20.8 44.5 28.8 46.6 25.1 29.4 27.2 27.6 11.9 22.0 22.0 19.1
Chhattisgarh 69.8 21.6 12.8 24.6 40.8 16.9 1.7 24.8 18.8 3.1 15.3 10.1
Goa 77.4 29.1 20.2 25.9 14.1 22.6 10.2 25.0 11.9 12.8 13.9 13.2
Gujarat 19.5 17.9 16.8 24.5 11.8 14.2 15.7 17.7 28.1 15.1 17.0 18.1
Haryana 24.8 21.7 43.0 75.5 84.1 29.3 25.7 31.2 13.5 19.2 24.1 20.3
Jharkhand 33.6 9.9 18.9 48.4 19.3 17.0 15.7 16.9 4.2 13.9 19.9 14.7
Karnataka 17.7 11.2 10.7 25.2 13.3 5.9 13.7 11.8 16.7 8.1 15.5 13.4
Kerala 37.4 16.4 21.2 36.8 33.3 13.8 17.9 23.1 12.1 17.0 18.0 16.9
Maharashtra 16.6 15.6 19.6 39.7 15.1 4.7 18.3 17.8 34.2 17.0 17.3 19.0
Madhya Pradesh 10.1 19.6 16.5 30.3 20.3 9.7 12.1 15.7 13.3 12.1 17.7 14.9
Orissa 34.3 21.3 17.0 34.4 33.2 7.9 18.2 21.1 9.5 10.8 20.5 14.6
Punjab 25.1 36.9 36.2 85.1 49.9 15.5 7.9 34.2 12.0 12.0 16.1 13.7
Rajasthan 21.7 29.7 18.9 22.9 24.6 10.1 15.8 23.6 26.3 13.3 17.4 18.4
Tamil Nadu 29.2 25.3 14.0 21.6 13.4 8.4 12.9 20.2 24.8 20.5 16.7 18.8
Uttar Pradesh 12.5 27.6 22.1 48.6 38.2 11.6 12.4 21.0 14.4 14.9 18.9 16.7
West Bengal 33.2 22.2 16.3 45.9 13.4 2.2 16.7 19.9 19.0 12.4 17.6 16.9
GCS 23.0 20.2 18.5 36.7 18.7 10.1 16.1 19.7 18.5 14.8 17.9 17.1
Arunachal Pradesh 11.4 83.8 −2.6 36.1 −41.5 25.1 16.5 8.5 22.0 18.6 20.7 20.3
Assam 32.4 11.4 17.9 31.9 25.6 11.4 7.0 18.1 17.2 10.1 12.8 13.3
Jammu & Kashmir 17.5 −2.8 1.4 30.7 −38.4 12.3 8.2 1.8 7.9 14.1 17.6 14.5
Manipur 29.9 30.8 10.3 −10.6 6.9 12.1 10.0 14.7 11.4 7.3 14.8 11.5
Meghalaya 6.9 13.0 17.0 57.9 12.6 13.5 14.1 14.8 3.8 5.9 15.3 10.1
Mizoram 25.9 5.4 7.0 17.1 5.6 6.8 14.3 9.2 10.0 16.7 16.2 15.0
Nagaland 15.1 25.1 13.2 −8.4 15.5 13.4 18.0 14.7 7.8 8.9 9.4 8.9
Sikkim −34.2 51.5 11.5 33.6 1.8 12.3 11.4 23.2 12.1 84.4 27.5 48.7
Tripura 19.1 16.5 20.2 10.3 13.8 17.5 11.0 19.6 6.8 17.6 13.4 13.2
Uttarakhand 24.6 22.1 20.5 65.8 17.7 18.0 28.3 21.7 16.6 21.1 22.8 21.3
SCS 22.8 15.3 13.7 41.7 −5.5 13.8 9.8 15.2 13.8 14.1 15.1 14.5
Credit Output
State
Agriculture
Industry
Services
Transport
Professional
Personal
Trade
Total Credit
Agriculture
Industry
Services
SDP
Andhra Pradesh 26.4 27.0 25.9 24.3 33.4 28.9 14.7 26.4 12.2 17.6 14.7 14.8
Bihar 27.8 18.8 20.1 11.9 27.5 24.3 18.5 22.1 8.5 18.5 14.2 13.0
Chhattisgarh 33.5 23.1 23.7 36.4 31.9 30.7 16.1 24.6 12.0 19.2 14.6 15.8
Goa 22.8 15.5 18.9 23.2 17.1 25.6 16.2 17.7 9.9 19.8 15.5 17.0
Gujarat 24.6 21.0 23.4 36.5 33.5 29.5 19.6 22.2 16.1 16.2 15.2 15.8
Haryana 26.1 22.3 31.8 43.2 52.7 30.5 19.4 26.6 12.6 15.6 18.4 16.1
Jharkhand 20.0 16.2 22.8 25.3 38.0 27.0 16.9 19.7 10.3 10.8 14.7 12.0
Karnataka 22.1 22.7 26.5 31.9 38.0 27.4 16.7 24.5 8.7 15.9 15.7 14.2
Kerala 26.0 13.4 22.1 18.5 24.8 27.1 13.6 21.0 9.0 14.2 14.5 13.5
Maharashtra 23.7 23.5 24.6 36.8 40.4 30.6 15.7 24.1 13.3 16.1 14.8 15.0
Madhya Pradesh 23.2 17.5 20.5 25.0 30.0 23.8 10.2 20.1 11.2 14.1 11.6 12.2
Orissa 27.2 24.1 22.9 28.5 28.8 23.9 20.3 23.9 12.6 20.1 15.6 16.1
Punjab 23.2 25.8 18.3 33.7 41.2 21.8 12.3 22.1 10.6 13.4 12.8 12.2
Rajasthan 24.4 29.4 23.2 31.6 32.8 25.1 13.5 25.5 13.0 14.5 13.6 13.7
Tamil Nadu 30.1 20.5 22.8 27.7 30.8 26.6 15.8 22.6 14.1 14.4 14.7 14.5
Uttar Pradesh 24.1 19.2 20.8 22.3 35.4 24.7 12.3 21.1 10.5 13.5 13.5 12.6
West Bengal 27.2 20.2 22.8 30.5 30.3 23.0 13.0 21.9 10.0 12.7 13.6 12.5
GCS 25.3 22.5 23.8 32.1 35.8 27.2 15.3 23.4 11.5 15.4 14.5 14.1
Assam 25.4 7.7 21.1 17.9 30.1 30.3 13.6 17.2 9.3 11.7 11.7 10.9
Jammu & Kashmir 25.8 20.6 15.3 19.4 4.8 24.9 12.8 17.1 7.2 13.5 12.1 11.2
Manipur 32.1 12.9 27.6 16.6 27.4 37.2 10.4 26.2 10.1 11.7 10.3 10.4
Meghalaya 22.7 22.3 23.5 16.3 20.4 31.4 14.4 22.1 7.4 16.5 12.5 12.5
Mizoram 35.8 19.1 29.4 1.3 46.9 36.0 10.3 28.7 8.1 15.3 12.3 12.0
Nagaland 27.0 30.2 33.9 14.9 39.0 44.7 11.9 32.5 8.0 15.0 11.8 11.1
Sikkim 29.4 50.8 31.6 24.4 33.5 34.2 11.5 36.0 10.0 28.8 15.0 19.4
Tripura 20.7 26.0 25.7 17.3 30.1 31.6 9.0 24.9 7.3 13.4 11.5 11.0
Uttarakhand 27.1 24.1 23.7 16.9 38.1 26.8 24.3 24.3 10.5 25.4 19.4 19.3
SCS 26.6 17.7 20.7 16.7 14.8 28.5 13.2 20.4 8.7 13.9 12.1 11.7
Annex 7.5 Sectoral shares in credit and output 2001–4
State SAGCRDT SINDCRDT SERVCRDT SPROFCRDT SPERSCRDT STRNSPTCRDT STRDCRDT SAGRICULTURE SINDUSTRY SSERVICE
Andhra Pradesh 17.6 34.7 47.6 4.5 20.4 1.6 9.1 26.9 22.8 50.3
Bihar 21.9 15.5 62.6 2.8 27.1 2.5 19.6 36.6 12.1 51.2
Chhattisgarh 10.9 40.1 49.1 3.8 16.7 0.8 14.9 26.1 36.5 37.4
Goa 2.4 43.4 54.3 9.8 20.6 4.8 9.8 9.6 42.7 47.8
Gujarat 9.8 58.0 32.2 2.7 10.7 0.8 9.2 17.2 38.1 44.7
Haryana 20.1 46.2 33.7 2.2 15.7 0.5 7.7 27.1 30.7 42.2
Jharkhand 8.3 42.4 49.2 2.2 20.6 2.3 11.8 17.6 48.1 34.4
Karnataka 15.1 38.2 46.7 5.4 21.3 1.4 7.2 23.1 27.3 49.6
Kerala 12.6 22.4 65.0 5.2 27.4 1.5 18.5 19.7 21.2 59.1
Maharashtra 4.0 45.4 50.6 4.2 9.0 2.0 18.1 12.7 29.0 58.3
Madhya Pradesh 22.4 33.9 43.6 2.6 18.9 1.0 12.4 27.3 25.8 46.8
Orissa 12.9 31.6 55.4 4.4 25.7 2.2 11.9 26.9 28.2 44.9
Punjab 19.0 33.6 47.5 2.1 16.1 0.4 22.0 34.6 24.9 40.6
Rajasthan 23.5 29.8 46.6 3.0 20.6 1.2 13.7 26.5 28.4 45.1
Tamil Nadu 8.4 43.6 48.0 5.6 17.7 1.2 10.1 12.6 30.0 57.4
Uttar Pradesh 21.9 31.4 46.7 3.2 18.0 1.0 12.5 32.1 22.1 45.8
West Bengal 5.5 48.5 46.0 4.6 14.5 0.9 11.9 27.1 19.3 53.6
GCS 11.0 41.0 48.0 4.2 15.6 1.4 13.6 23.0 26.9 50.1
Assam 7.1 36.3 56.7 2.6 21.6 2.3 11.3 29.2 23.6 47.2
Himachal Pradesh 10.2 35.4 54.4 10.9 21.2 4.9 10.6 25.5 37.9 36.6
Jammu & Kashmir 4.8 17.1 78.0 30.7 17.9 3.7 17.8 28.7 25.4 45.9
Manipur 11.6 16.9 71.5 3.7 37.3 2.7 15.3 25.6 30.7 43.7
Meghalaya 7.7 39.5 52.8 4.2 21.7 3.3 11.8 26.1 24.0 49.9
Mizoram 8.3 13.3 78.5 1.4 43.5 7.7 16.2 25.6 16.6 57.8
Nagaland 12.4 18.1 69.5 4.8 29.5 3.4 11.9 33.5 13.0 53.5
Sikkim 6.5 15.4 78.1 16.5 42.4 2.7 8.4 19.5 26.0 54.5
Tripura 17.6 10.1 72.3 2.7 31.0 4.6 24.4 26.8 23.6 49.6
Uttarakhand 15.0 29.1 55.9 3.5 26.5 3.3 12.6 25.0 24.8 50.2
SCS 8.6 29.5 61.9 11.3 21.9 3.4 13.2 28.4 26.0 45.6
Andhra Pradesh 17.8 30.8 51.4 5.2 28.0 1.4 7.2 23.9 25.8 50.3
Bihar 23.1 21.5 55.5 3.2 32.0 1.1 14.5 30.2 15.1 54.7
Chhattisgarh 12.9 40.7 46.4 2.8 24.8 1.1 13.4 21.2 45.1 33.7
Goa 3.0 41.4 55.7 7.3 29.3 6.6 6.5 8.0 47.3 44.7
Gujarat 11.9 51.0 37.1 3.9 17.6 1.6 8.9 17.1 40.2 42.7
Haryana 21.9 32.7 45.4 5.0 24.1 1.0 8.2 22.4 31.9 45.7
Jharkhand 9.4 32.8 57.8 4.0 29.7 2.1 15.9 16.4 48.0 35.6
Karnataka 12.9 34.8 52.3 7.7 28.1 1.5 6.4 18.2 30.9 50.9
Kerala 13.3 17.7 69.0 5.8 38.1 1.2 14.1 16.9 23.1 60.0
Maharashtra 4.6 44.6 50.8 6.5 15.5 2.3 10.5 11.2 31.4 57.3
Madhya Pradesh 25.3 26.1 48.6 3.2 25.8 1.0 10.7 26.7 28.0 45.2
Orissa 12.2 34.1 53.7 3.9 30.3 1.9 12.5 22.9 35.3 41.8
Punjab 22.0 33.6 44.4 5.4 23.4 0.5 9.4 31.7 26.5 41.7
Rajasthan 22.4 31.7 45.9 3.4 26.0 1.7 10.5 24.9 31.2 43.9
Tamil Nadu 11.4 38.4 50.2 6.9 24.7 1.0 7.4 11.7 31.6 56.8
Uttar Pradesh 25.3 25.1 49.7 4.6 27.2 0.8 11.2 28.3 24.7 47.1
West Bengal 7.3 43.5 49.2 5.8 20.4 1.3 12.9 23.5 21.3 55.1
GCS 12.2 37.7 50.1 5.8 22.7 1.6 9.7 20.1 29.8 50.1
Assam 8.2 26.6 65.2 3.8 38.9 1.9 14.2 26.7 25.2 48.1
Jammu & Kashmir 5.6 30.4 64.0 12.3 21.6 3.6 17.5 26.2 29.1 44.7
Manipur 11.9 17.0 71.1 3.8 53.4 1.7 9.5 24.2 36.5 39.2
Meghalaya 6.3 40.6 53.1 3.1 34.3 1.6 10.6 22.7 27.8 49.5
Mizoram 14.6 9.9 75.5 3.3 57.7 1.3 10.1 21.8 19.1 59.2
Nagaland 10.5 19.5 70.1 5.6 48.0 1.6 11.7 30.9 14.1 55.0
Sikkim 4.8 11.6 83.7 7.5 59.6 2.3 9.7 17.3 29.2 53.5
Tripura 13.2 10.0 76.8 2.7 43.1 4.0 20.5 24.3 25.4 50.4
Uttarakhand 15.3 30.0 54.8 5.1 32.9 1.4 11.3 18.9 32.4 48.7
SCS 9.9 30.1 60.0 6.4 31.5 2.3 13.4 25.8 28.6 45.5
Andhra Pradesh 17.6 37.4 45.0 6.8 21.7 1.4 6.7 22.9 27.3 49.8
Bihar 34.2 11.1 54.7 3.9 29.7 1.4 15.4 27.3 17.6 55.1
Chhattisgarh 19.1 37.3 43.6 4.4 21.5 1.7 12.8 19.5 45.2 35.3
Goa 3.2 36.7 60.0 9.8 32.2 6.5 8.1 5.8 50.6 43.6
Gujarat 10.6 54.7 34.7 5.1 15.5 2.0 7.2 17.0 39.3 43.7
Haryana 18.6 37.7 43.7 8.5 18.4 1.2 9.0 21.8 29.3 48.9
Jharkhand 8.5 34.6 56.9 6.2 30.0 3.5 14.3 15.7 42.6 41.7
Karnataka 13.3 34.7 52.0 12.1 24.2 2.3 6.5 16.3 29.6 54.1
Kerala 16.8 13.9 69.3 6.6 38.9 1.3 12.1 14.5 22.1 63.4
Maharashtra 3.6 44.2 52.2 10.4 11.9 4.4 8.4 11.1 30.8 58.1
Madhya Pradesh 27.3 29.7 43.0 4.9 22.0 1.4 10.3 25.1 29.9 45.0
Orissa 16.5 32.3 51.3 6.2 24.5 3.2 12.4 20.5 36.1 43.4
Punjab 20.3 44.1 35.7 5.5 14.7 1.0 10.5 31.4 26.7 42.0
Rajasthan 21.7 38.8 39.4 4.6 19.0 1.7 7.6 24.9 29.9 45.1
Tamil Nadu 13.2 39.2 47.7 9.1 20.4 1.7 7.4 12.7 29.6 57.8
Uttar Pradesh 26.7 28.9 44.4 7.3 20.1 1.1 9.8 28.3 23.2 48.5
West Bengal 6.9 44.5 48.6 7.6 15.4 1.6 12.9 23.0 19.3 57.7
GCS 12.2 39.4 48.4 8.5 18.2 2.6 8.7 19.5 29.0 51.5
Assam 11.2 18.7 70.1 5.7 43.0 2.6 12.5 26.3 24.1 49.6
Jammu & Kashmir 8.2 20.7 71.1 17.2 28.7 4.5 19.0 21.3 29.7 49.0
Manipur 16.7 7.5 75.9 3.9 61.5 1.6 6.2 24.8 31.8 43.4
Meghalaya 7.3 34.4 58.2 3.3 37.6 2.4 11.9 18.1 31.6 50.2
Mizoram 13.7 7.2 79.1 3.4 61.3 1.0 11.4 19.9 20.6 59.5
Nagaland 8.9 15.7 75.4 6.6 56.6 1.2 9.5 26.9 17.0 56.1
Sikkim 5.6 34.8 59.6 10.3 35.3 1.5 9.6 10.4 49.3 40.3
Tripura 13.7 11.9 74.4 3.7 43.6 2.6 19.2 20.4 27.9 51.7
Uttarakhand 18.1 29.2 52.7 7.9 29.3 2.3 11.2 14.1 35.0 50.9
SCS 12.6 24.9 62.5 8.5 34.5 2.8 13.0 22.9 30.0 47.0
Andhra Pradesh 17.7 34.0 48.3 5.4 23.5 1.5 7.8 24.7 25.1 50.2
Bihar 25.7 16.5 57.8 3.3 29.6 1.7 16.6 31.7 14.7 53.5
Chhattisgarh 13.9 39.5 46.6 3.6 20.9 1.1 13.8 22.5 42.0 35.5
Goa 2.8 40.8 56.3 8.9 26.9 6.0 8.1 8.0 46.5 45.5
Gujarat 10.8 54.6 34.6 3.8 14.6 1.4 8.5 17.1 39.2 43.7
Haryana 20.3 39.0 40.7 5.0 19.5 0.9 8.2 23.9 30.8 45.3
Jharkhand 8.7 36.8 54.4 3.9 26.5 2.6 14.0 16.6 46.6 36.8
Karnataka 13.8 36.0 50.2 8.1 24.6 1.7 6.7 19.4 29.3 51.3
Kerala 14.0 18.4 67.6 5.8 34.4 1.4 15.1 17.3 22.2 60.6
Maharashtra 4.1 44.8 51.1 6.7 12.2 2.8 12.7 11.8 30.4 57.9
Madhya Pradesh 24.8 29.9 45.3 3.5 22.3 1.1 11.2 26.5 27.7 45.8
Orissa 13.6 32.7 53.7 4.7 27.0 2.4 12.3 23.7 32.9 43.4
Punjab 20.4 36.4 43.1 4.2 18.4 0.6 14.3 32.7 26.0 41.4
Rajasthan 22.6 33.0 44.4 3.6 22.1 1.5 10.8 25.5 29.9 44.7
Tamil Nadu 10.8 40.5 48.7 7.0 21.0 1.3 8.4 12.3 30.4 57.3
Uttar Pradesh 24.4 28.4 47.2 4.8 21.9 0.9 11.3 29.7 23.3 47.0
West Bengal 6.5 45.6 47.9 5.8 16.9 1.2 12.5 24.7 20.0 55.3
GCS 11.8 39.4 48.9 5.9 18.9 1.8 10.9 21.0 28.5 50.5
Assam 8.6 28.0 63.4 3.9 33.7 2.2 12.7 27.5 24.3 48.2
Jammu & Kashmir 6.0 22.9 71.0 20.3 22.2 3.9 18.0 25.8 27.9 46.3
Manipur 13.1 14.4 72.5 3.8 49.7 2.0 10.7 24.9 33.1 42.0
Meghalaya 7.1 38.5 54.4 3.5 30.6 2.4 11.4 22.7 27.5 49.9
Mizoram 12.0 10.4 77.6 2.6 53.5 3.6 12.7 22.7 18.6 58.8
Nagaland 10.8 17.9 71.3 5.6 43.6 2.1 11.1 30.8 14.5 54.8
Sikkim 5.6 19.3 75.1 11.5 46.7 2.2 9.2 16.2 33.5 50.2
Tripura 14.9 10.6 74.5 3.0 38.8 3.8 21.5 24.1 25.4 50.5
Uttarakhand 15.9 29.5 54.6 5.3 29.6 2.3 11.8 19.8 30.3 49.8
SCS 10.2 28.5 61.4 8.8 28.8 2.8 13.2 26.0 28.1 46.0
Annex 7.9 Panel unit root tests – general category states
ADF-Fisher PP-Fisher
Variable LLC TIPS Breitung Hddri Chi-square Chi Square
LPSDP 7.897 9.469 0.306 8.599 0.837 0.131

(1.000) (1.000) (0.620) (0.000) (1.000) (1.000)
LPTCAS 0.340 4.637 0.307 8.623 4.425 16.843
(0.633) (1.000) (0.620) (0.000) (1.000) (0.993)
LPAGR 9.867 8.653 −1.741 8.260 1.134 2.059
(1.000) (1.000) (0.040) (0.000) (1.000) (1.000)
LPACS −1.129 3.893 −1.215 8.570 8.166 13.602
(1.129) (1.000) (0.887) (0.000) (1.000) (1.000)
LPIND −1.224 4.050 0.469 8.480 9.578 1.633
(0.110) (1.000) (0.680) (0.000) (1.000) (1.000)
LPICS 3.469 5.770 0.077 8.157 4.190 9.648
(0.999) (1.000) (0.530) (0.000) (1.000) (1.000)
LPSERV 14.779 13.806 1.882 8.662 0.131 0.010
(1.000) (1.000) (0.970) (0.000) (1.000) (1.000)
LPSCS −2.969 2.441 0.816 8.659 12.349 51.259
(0.001) (0.992) (0.792) (0.000) (0.999) (0.029)
Δ LPSDP −5.519 −2.379 −0.289 5.815 60.187 101.392
(0.000) (0.008) (0.386) (0.000) (0.003) (0.000)
Δ LPTCAS −5.905 −1.971 −4.423 1.568 50.284 84.207
(0.000) (0.024) (0.000) (0.058) (0.035) (0.000)
Δ LPAGR −3.667 −2.195 −1.552 4.559 58.842 150.335
(0.000) (0.014) (0.060) (0.000) (0.005) (0.000)
Δ LPACS −7.633 −2.777 −3.475 3.665 64.863 94.856
(0.000) (0.002) (0.000) (0.000) (0.001) (0.000)
Δ LPIND −2.662 −2.253 −0.763 3.228 56.286 149.586
(0.003) (0.012) (0.222) (0.000) (0.009) (0.000)
Δ LPICS −3.964 −1.459 −2.638 1.796 46.037 116.372
(0.000) (0.072) (0.004) (0.036) (0.081) (0.000)
Δ LPSERV −1.723 1.113 0.311 6.815 23.559 27.885
(0.042) (0.867) (0.622) (0.000) (0.910) (0.760)
Δ LPSCS −2.478 −1.796 −3.200 1.866 50.626 123.202
(0.006) (0.036) (0.000) (0.031) (0.033) (0.000)
Assumption – Individual intercept.

Annex 7.10 Panel unit root tests – special category states
ADF−Fisher PP−Fisher
Variable LLC TIPS Breitung Hddri Chi−square Chi Square
LPSDP 7.851 8.133 0.121 6.923 0.248 0.090

(1.000) (1.000) (0.548) (0.000) (1.000) (1.000)
Δ LPSDP −1.778 0.218 0.772 4.027 20.409 47.069
(0.037) (0.586) (0.780) (0.000) (0.557) (0.001)
LPAGR 2.989 5.515 −1.203 6.917 2.787 4.742
(0.998) (1.000) (0.114) (0.000) (1.000) (1.000)
Δ LPAGR −2.801 −1.662 −2.834 3.853 35.767 59.287
(0.002) (0.048) (0.002) (0.000) (0.032) (0.000)
LPIND 1.146 4.130 0.528 6.813 7.272 4.755
(0.874) (1.000) (0.701) (0.000) (0.998) (1.000)
Δ LPIND −3.717 −2.041 −2.032 2.573 35.564 77.607
(0.000) (0.020) (0.021) (0.005) (0.015) (0.000)
LPSERV 8.532 8.728 0.621 6.907 0.272 0.053
(1.000) (1.000) (0.732) (0.000) (1.000) (1.000)
Δ LPSERV −5.779 −0.399 −3.916 12.162 31.904 72.937
(0.000) (0.344) (0.000) (0.000) (0.079) (0.000)
LPTCAS −2.705 1.142 1.733 6.559 12.256 51.268
(0.003) (0.873) (0.958) (0.000) (0.951) (0.000)
Δ LPTCAS −3.012 −0.829 −2.073 1.623 26.597 57.646
(0.001) (0.203) (0.019) (0.052) (0.226) (0.000)
LPACS −0.808 2.232 0.811 6.404 7.072 17.142
(0.209) (0.987) (0.791) (0.000) (0.998) (0.755)
Δ LPACS −3.893 −2.291 −2.506 2.117 41.246 98.681
(0.000) (0.011) (0.006) (0.017) (0.007) (0.000)
LPICS −1.894 1.192 0.137 5.958 15.855 29.125
(0.029) (0.883) (0.554) (0.000) (0.823) (0.141)
Δ LPICS −6.457 −3.378 −3.604 1.438 52.860 101.963
(0.000) (0.004) (0.000) (0.075) (0.000) (0.000)
LPSCS −3.087 1.097 1.455 6.644 11.216 52.595
(0.001) (0.863) (0.927) (0.000) (0.971) (0.000)
Δ LPSCS −1.489 −0.534 −2.261 2.530 26.769 85.343
(0.068) (0.296) (0.011) (0.005) (0.220) (0.000)
Assumption – Individual intercept.

Annex 7.11 Panel cointegration tests
GCS SCS
LPTCAS & LPAGR & LPIND & LPSERV & LPAGRI & LPAGRI & LPIND & LPSERV &
GCS LPSDP LPACS LPICS LPSCS LPSDP LPACS LPICS LPSCS
panel – v 1.997 9.686 5.265 2.839 4.960 3.161 19.398 4.195

(0.022) (0.000) (0.000) (0.002) (0.000) (0.000) (0.000) (0.000)
panel – rho 2.730 1.352 −0.559 2.115 1.805 0.733 −1.187 1.119
(0.996) (0.911) (0.288) (0.982) (0.964) (0.770) (0.882) (0.868)
panel – pp −0.287 −5.437 −7.292 −3.677 −0.912 −0.758 −1.386 −3.839
(0.387) (0.000) (0.000) (0.000) (0.180) (0.0001) (0.082) (0.000)
panel – ADF −5.683 −5.538 −7.885 −5.767 −3.327 −5.512 −2.943 −4.875
(0.000) (0.000) (0.000) (0.000) (0.000) (0.000) (0.001) (0.000)
Group – rho 3.913 3.130 1.652 3.079 2.252 2.249 2.418 2.311
(1.000) (0.999) (0.950) (0.999) (0.987) (0.987) (0.992) (0.989)
Group – pp 0.326 −3.544 −7.770 −4.947 −7.249 −4.905 −1.645 −5.053
(0.628) (0.000) (0.000) (0.000) (0.000) (0.000) (0.050) (0.000)
Group – ADF −3.551 −4.677 −6.905 −6.748 −5.890 −6.151 −3.133 −5.283
(0.000) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000)
Assumption – Deterministic trend and intercept.

Annex 7.12 FMOLS estimates of responsiveness between credit and output
Response Response Response Response Response Response Response Response

of TCAS to of SDP to of ACS to of AGRI to of ICS to of INDS to of SCS to of SERV to
changes in changes in changes in changes in changes in changes in changes in changes in
State SDP TCAS AGRI ACS INDS ICS SERV SCS
Andhra Pradesh 1.646 0.600 1.897 0.525 1.582 0.639 1.606 0.555
(12.303) (−36.259) (7.344) (−18.031) (11.805) (−13.819) (4.842) (−15.921)
Bihar 1.270 0.569 2.311 0.329 0.508 0.704 1.194 0.692
(0.831) (−4.084) (2.360) (−15.635) (−1.406) (−1.395) (0.782) (−2.331)
Chhattisgarh 1.554 0.639 3.248 0.317 1.293 0.756 1.291 0.669
(11.129) (−38.797) (10.068) (−25.865) (4.066) (−5.596) (3.345) (−6.836)
Goa 1.012 1.004 3.021 0.322 0.720 1.368 1.182 0.844
(0.222) (0.083) (8.077) (−20.755) (−6.307) (4.438) (2.765) (−4.011)
Gujarat 1.428 0.703 1.555 0.627 1.298 0.777 1.416 0.623
(4.800) (−7.953) (3.279) (−5.936) (8.832) (−5.746) (2.549) (−7.762)
Haryana 1.614 0.628 1.636 0.482 1.526 0.609 1.629 0.609
(8.373) (−14.673) (2.916) (−8.925) (5.338) (−7.903) (4.578) (−7.527)
Jharkhand 1.686 0.597 2.053 0.494 1.722 0.489 1.341 0.729
(6.877) (−13.118) (6.316) (−13.251) (1.800) (−50.42) (5.660) (−8.325)
Karnataka 1.423 0.574 1.667 0.460 1.440 0.687 1.361 0.553
(4.360) (−11.255) (4.285) (−10.138) (8.839) (−16.205) (2.374) (−7.992)
Kerala 1.463 0.672 2.913 0.350 0.896 1.093 1.414 0.688
(7.001) (−11.360) (21.493) (−60.807) (−4.761) (3.270) (4.353) (−6.925)
Maharashtra 1.647 0.631 1.478 0.526 1.492 0.679 1.607 0.616
(12.304) (−25.493) (1.893) (−6.315) (12.076) (−15.513) (13.184) (32.775)
Continued
Response Response Response Response Response Response Response Response

of TCAS to of SDP to of ACS to of AGRI to of ICS to of INDS to of SCS to of SERV to
changes in changes in changes in changes in changes in changes in changes in changes in
State SDP TCAS AGRI ACS INDS ICS SERV SCS
Madhya Pradesh 1.565 0.616 2.133 0.423 1.329 0.744 1.463 0.533
(3.539) (−12.453) (4.942) (−15.103) (6.097) (−8.630) (1.745) (−5.260)
Odisha 1.270 0.714 2.215 0.467 1.024 0.900 1.250 0.732
(3.190) (−5.589) (8.611) (−18.972) (0.414) (−2.282) (1.767) (−3.273)
Punjab 1.756 0.571 1.850 0.500 2.053 0.478 1.343 0.737
(11.804) (−21.567) (4.031) (−14.521) (24.476) (−31.642) (3.685) (−5.531)
RAJ 1.718 0.547 1.713 0.544 2.055 0.489 1.440 0.563
(5.774) (−19.563) (3.323) (−8.890) (37.835) (−73.153) (2.499) (−6.795)
TN 1.412 0.697 1.559 0.578 1.409 0.714 1.369 0.657
(9.130) (−17.044) (3.637) (−11.879) (8.951) (−10.140) (4.285) (−11.035)
UP 1.530 0.604 1.957 0.382 1.532 0.661 1.393 0.652
(4.666) (−11.983) (2.969) (−18.027) (7.514) (−7.053) (2.424) (−4.864)
West Bengal 1.632 0.578 2.208 0.389 1.619 0.609 1.528 0.589
(6.886) (−19.602) (3.190) (−9.284) (9.707) (−11.873) (4.568) (−11.198)
GCS 1.501 0.644 2.083 0.454 1.382 0.729 1.402 0.650
(12.304) (−65.657) (23.946) (−68.476) (32.809) (−50.516) (15.863) (−35.983)
Arunachal 1.647 0.389 1.626 0.247 1.437 0.644 1.902 0.322
Pradesh (27.200) (−13.325) (0.779) (−9.592) (2.948) (−4.966) (1.838) (−15.113)
Assam 1.482 0.670 2.522 0.390 0.205 0.595 1.605 0.580
(2.095) (−4.691) (12.609) (−34.648) (−2.068) (−1.176) (4.971) (−15.280)
Himachal Pradesh 1.479 0.687 3.091 0.326 1.339 0.641 1.253 0.818
(2.936) (−4.380) (8.274) (−20.171) (1.530) (−3.272) (2.462) (−3.040)
Jammu & 1.411 0.517 3.817 0.230 1.066 0.456 1.019 0.741
Kashmir (1.524) (−5.326) (4.587) (−25.273) (0.151) (−5.219) (0.123) (−2.756)
MAN 2.709 0.351 3.801 0.274 1.517 0.505 2.364 0.328
(6.137) (−23.337) (9.027) (−30.975) (1.288) (−3.964) (3.049) (−19.376)
MEG 1.259 0.383 3.086 0.258 0.656 0.294 1.682 0.437
(0.466) (−3.942) (3.809) (−21.878) (−0.671) (−2.897) (1.350) (−4.856)
Mizoram 2.280 0.331 4.605 0.158 0.930 0.672 2.270 0.341
(3.302) (−11.818) (2.408) (−16.232) (−0.308) (−2.972) (3.487) (−11.999)
Nagaland 3.174 0.275 5.524 0.158 2.155 0.396 2.866 0.306
(6.169) (−65.160) (3.157) (−31.866) (2.941) (−13.048) (10.328) (−56.544)
SKM 1.451 0.557 3.031 0.271 1.490 0.650 1.659 0.462
(1.625) (−4.105) (4.214) (−46.765) (2.162) (−4.926) (2.039) (−5.875)
TRI 2.347 0.421 3.492 0.280 2.033 0.497 2.252 0.431
(8.050) (−20.680) (10.220) (−39.499) (8.535) (−23.755) (6.183) (−14.910)
URN 1.105 0.791 2.409 0.408 0.927 1.050 1.050 0.838
(1.342) (−4.525) (7.072) (−21.579) (−2463) (2.466) (0.474) (−1.894)
SCS 1.891 0.488 3.364 0.273 1.251 0.582 1.811 0.509
(10.986) (−48.630) (19.947) (−89.995) (4.235) (−19.215) (10.946) (−45.723)
Notes
1 Introduction
1. India follows a fiscal year from April–March, unlike many developed coun-
tries, which follow a calendar year for measuring growth performance.
2. Economic, social, educational and infrastructural backwardness are captured
through cap percentage of agriculture workers to total workers, percentage
of SC plus ST population, female literacy rate and percentage of households
without electricity, respectively.
2 Key Challenges
1. Classification of the zones is given in Annex-2.
2. The ISC consists of the prime minister as the chairman; the chief ministers of
all states and Union territories having legislative assemblies; administrators of
UTs (Union Territories), which did not have legislative assemblies; governors
of states under president’s rule; and six Union cabinet ministers nominated
by the prime minister as members. The chairman of ISC is also authorized to
nominate some Union ministers as permanent invitees to the ISC.
3 Growth Performance
1. India’s National Integration Council (1961) held that ‘a rapid development
of the economically backward regions in any state should be given priority
in national and state plans, at least to the extent that the minimum level of
development is reached for all states within a stated period’.
2. The National Integration Council (1961) held that ‘a rapid development of
the economically backward regions in any state should be given priority in
national and state Plans, at least to the extent that the minimum level of
development is reached for all states within a stated period’.
3. As Rao, Govinda, Shand and Kalirajan (27 March, 1999-EPW) observe, ‘Our
analysis of convergence takes into account the 14 major states in the Indian
Union. These 14 major states account for 93 per cent of the population and
91.5 per cent of net domestic product in the country and are, therefore,
representative’. These authors further assert that the ‘Special Category’ states
and the small state of Goa have been excluded from the analysis because of
the significant differences in the structure of their economies from the rest
of the states and, therefore, their steady-state values of income are likely to
be different.
4. Classification of different sectors for the purpose of this study is given in
Annex 3.1.
224
Notes 225
5. The year 2000 refers to 1999–2000. Thus, the period of analysis is from
1999–2000 to 2011–12. In this form of reporting, the 1999–2000 covers 9
months of the calendar year 1999 and 3 months of the calendar year 2000.
Thus in calendar year terms, the period of analysis broadly corresponds to
1999–2011.
6. The sectoral growth rates have been reported on an absolute rather than per
capita basis. This is because we do not have information on population on a
sectoral basis. Applying the overall population growth numbers to derive the
sectoral growth on a per capita basis might not give the correct picture.
4 Income Inequality
1. Details of estimation issues related to convergence can be found in Misra
(2007).
2. Durlauf and Quah (1999) report that, as of 1998, over 90 different condi-
tioning variables have appeared in the literature, despite the fact that no
more than 120 countries are available for analysis in the standard datasets.
6 Health and Growth

1. The scatter plot shows negative association between health expenditure and
IMR. Decline in IMR is indicative of improvement in health status.
2. The scatter plot shows a negative association between health expenditure
and IMR. A decline in IMR is indicative of improvement in health status.
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Index
3-G spectrum, 9 agricultural growth, 10, 195, 197

7th plan, 114 agricultural productivity, 5
8th five-year plan, 16 agricultural sector, 28, 202, 204, 205
8th plan, 114 agriculture, 5, 18, 23, 25, 42,
10th Finance Commission, 112, 118, 45, 46, 57, 104, 111, 120, 121,
119, 120 187, 190–1, 193–201, 202, 204,
10th five-year plan, 4, 114, 115, 159 205, 206, 208, 210, 212, 214, 215,
10th plan, 4, 5, 11, 115 216, 217
11th five-year plan, 10, 114, 115, agriculture economy, 45
159, 160 agriculture wage rate, 5
11th Finance Commission, 112, airports, 115
119, 120 All India Debt and Investment Survey
12th five-year plan, 2, 4, 10, 11, 12, (AIDIS), 22
14, 27, 112, 115, 118, 158, all-India level, 30, 34, 45, 49–50, 51,
159–60, 184 55, 84
all-India urban poverty, 84
a priori weights, 122 ALM problems, 118
Aadhaar, 20, 21 alternate concepts of poverty, 83
absolute convergence, 99, 100, 104, alternative hypotheses, 176
109–10, 111 Andaman & Nicobar Islands, 33, 38,
all states, 33, 34, 37, 43, 47, 48, 39, 44, 45, 48, 47, 51, 59, 61, 63, 65,
50, 53, 54, 57, 59, 61, 63, 65, 67, 67, 69, 73, 75, 77, 79
69, 73, 75, 77, 79, 80, 125, 165, Andhra Pradesh, 32, 34, 35, 40,
170, 173 46, 53, 58, 60, 62, 64, 66, 68,
absolute convergence estimations, 70, 72, 74, 76, 78, 85, 86, 87, 88,
104, 110 107, 124, 126, 131, 133, 134, 135,
absolute convergence regression 165, 166, 168, 183, 193, 194, 200,
estimates, 104 206, 208, 210, 212, 214, 215, 216,
absolute health expenditure, 164, 172 217, 221
access to banking, 4, 7 anecdotal evidence, 3, 81
accountable delivery of services, 5 anti-corruption law, 24
administrative expenditure, 163 approach paper to the 12th five-year
Administrative Reforms plan, 27, 160
Commission, 15 Arjun Sengupta Report, 82
administrative reorganization, 18 Article 263, 15
advanced countries, 7 Arunachal Pradesh, 33, 36, 37, 41, 43,
aggregate demand, 8 44, 47, 48, 50, 51, 53, 59, 61, 63, 65,
aggregate income, 161 67, 69, 71, 73, 75, 77, 79, 86, 89, 90,
agricultural credit, 187, 190, 191, 107, 124, 126, 132, 136, 137, 138,
193–4, 196–7, 198, 205 167, 169, 172, 173, 183, 197, 199,
agricultural credit growth, 193, 200, 201, 207, 209, 211, 213, 214,
194, 196 215, 216, 217, 222
241
242 Index
Asian Development Bank, 116 193, 194, 198, 199, 200, 206, 208,
Assam, 29, 33, 36, 37, 39, 41, 43, 44, 210, 212, 214, 215, 216, 217, 221
47, 48, 50, 51, 59, 61, 63, 65, 67, 69, bijli (electricity), 119
71, 73, 75, 77, 79, 86, 87, 89, 90, block-extension educators, 163
107, 123, 124, 125, 126, 167, 169, Blue Book, 22
171, 172, 173, 174, 183, 196, 197, blueprint for financial inclusion, 188
198, 199, 201, 207, 209, 211, 213, bond market, 116
214, 215, 216, 217, 223 BPLR system, 187
asset price bubbles, 8 branch banking, 23
asymptotic distribution, 175, Brazil, 116
177, 178 Build Own Lease Transfer (BOLT), 114
attributes of growth, 3 Build Own Operate (BOO), 114
Augmented Dickey-Fuller (ADF), 176, Build Own Transfer (BOT), 114
177, 180, 202 business considerations, 188
availability of electricity, 112, 119 business correspondent (BC), 23, 187
availability of infrastructure, 3, 24, business facilitator (BF), 23, 187
112, 113 business objective, 188
average annual growth rates, 103 business services, 57
average PCI, 85, 87
C. Rangarajan, 85
Backward Districts Initiative (BDI), C.K. Prahlad, 22
4–5 Cabinet Committee on Infrastructure,
Backward Regions Grant Fund 117, 118
(BRGF), 5 cabinet committee on investment, 10,
backwardness, 4, 5, 224n2 24, 117, 130
balanced regional development, 28 CAGR-based growth rates, 103–4
branch authorization policy, 23 calorie based estimates, 83
bank branches, 23, 120 calories, 82, 83–4
bank transfer, 23 calories norms, 82, 84
bank-dominated financial system, capacity constraints, 24
4, 187 capacity-building, 5
banking, 4, 7, 21, 22–3, 57, 187, 188, capital depreciation, 99
204–5 capital inflows, 12
banking and insurance, 57 capital market, 8
banking facilities, 23, 120 Carlson, Sam, 21
banking footprint, 187 cash payments, 23
banking penetration, 23 cash transfers, 7, 21, 25–6
banking sector reforms, 4 cash-transfer system, 7
base rate system, 187–8 catching up, 3, 106
best-case scenario, 2, 10, 11, 27, 158 catching up of poorer states, 106
Beta (β) convergence, 99, 101, 103, causality, 13, 129–30, 131–8, 174–5,
104–8 178–9, 180, 182, 184, 188–9,
Bharat Nirman, 19–20 203–4, 205
bidirectional causality, 130, 203–5 causality between credit and output,
Bihar, 32, 34, 35, 36, 39, 40, 43, 188, 189, 203–4, 205
46, 47, 50, 51, 58, 60, 62, 64, 66, 68, CCI, 117, 118
70, 72, 74, 76, 78, 85, 86, 87, 88, 90, central assistance, 4
107, 123, 124, 125, 126, 131, 133, central bank, 8, 12, 13, 22, 24,
134, 135, 164, 165, 166, 168, 183, 187, 204
Index 243
central region, 25 compound annual growth rate

Central Statistical Organization (CAGR), 103–4, 168
(CSO), 57 compulsory education, 21
centralized planning, 6, 16 concentration risk, 118
centre-state and inter-state concession agreements, 116
coordination, 7, 14, 17, 25 Concessionaire approach, 114
centre-state and inter-state relations, concordance between the rankings, 90
2, 6, 7, 13–18, 25 conditional specific grants, 119
centre-state coordination, 17 conditional β-convergence, 101,
Centre-State Relations Inquiry 104–8
Committee, 15 constant prices, 30
Chandigarh, 33, 38, 39, 44, 45, 48, 51, Constitution of India, 15
54, 59, 61, 63, 65, 67, 69, 71, 73, 75, Construction, 57, 113
77, 79 construction risks, 113
changing share of different categories consulting firms, 1
of states, 29, 52 consumption pattern, 83, 84
characteristics of infrastructure, 113 consumption-based inequality, 81,
CHCs, 158 82–5, 109
Chhattisgarh, 32, 34, 35, 40, 43, 46, contribution of GCS as a group, 53–4
47, 50, 51, 53, 54, 58, 60, 62, 64, contribution of SCS, 54, 57
66, 68, 70, 72, 74, 76, 78, 86, 87, contribution of states to growth in
88, 124, 125, 126, 131, 133, 134, GDP and population, 52–4
135, 164, 165, 166, 168, 170, 183, contribution of the primary sector to
193, 194, 195, 196, 198, 199, 200, growth, 49, 56
206, 208, 210, 212, 214, 215, 216, contribution of the services sector, 49
217, 221 contribution of the tertiary sector, 45,
chief minister, 6, 224n2 50, 56, 98
China, 1, 2, 23 contribution to growth, 49–50, 53–4,
Civil Administration, 120 56, 76, 80
climate change, 17 contribution to population growth, 54
club convergence, 100 contributions of different sectors to
CMIE, 119, 120 the overall growth, 29, 56
CMIE index, 119 contribution of the secondary sector
coalition government, 16, 17 to growth, 56
coefficient of concordance, 90 control variables, 104
cointegration regressions, 177 convergence, 82, 99–108, 109–10,
collateral, 23, 188 111, 224n3
combined SDP, 29, 52–4, 57, 74 convergence coefficients, 106
commercial banks, 4, 22, 23, 187, 188 convergence phenomenon, 99
commercial real estate, 8 convergence regressions, 104, 106
commercialisation of services, 116 convergence studies, 100
commission on centre-state relations, cooperative banks, 187
15–16 corporate debt market, 118
Committee on Financial Inclusion correlation, 12, 39, 95, 98, 176, 178
(CFI), 188 corruption, 21, 24
Committee on Infrastructure (COI), cost effectiveness, 21
116–17 cost overruns, 114, 116
communication, 57, 120, 121 course correction, 2
component index, 122 credit cooperatives, 4, 187
244 Index
credit growth, 188, 189–90, 193–4, dispersion of steady states, 106, 110
196–7 distribution of income, 91, 92, 95,
credit growth to agriculture, 193, 98, 161
194, 196 distributional dimension of growth,
credit growth to industry, 193, 194 81, 109
credit growth to services, 193, 194 district, 4–5, 16, 17, 18, 21, 24, 28,
credit risk, 8 29, 159
credit-growth relationship, 4, 188, 189 district plan, 5
credit-output growth at the state level, divergence, 100, 101
193–8 doctor-population ratio, 163
cross section, 177–8 doctors, 158, 159, 163
cross-section effects, 106 domestic savings, 54
cross-section estimates, 104 downside risks, 2
cross-sectional disparity of per capita durability of growth, 55
income, 99, 102
cultivator household, 22 eastern region, 24–5
current account, 12 EBT, 23
current account deficit (CAD), 12 ECM term, 179
economic boom, 188
data envelopment analysis, 122 economic growth, 1, 22, 54, 81,
deceleration in growth, 10, 31, 34, 35, 160–1, 162, 184
37, 43–4, 52, 55, 117 economic infrastructure, 20, 116, 118,
Delhi, 28, 33, 38, 39, 44, 45, 48, 51, 119, 122, 123, 127, 129–30, 131,
54, 59, 61, 63, 65, 67, 69, 73, 75, 132, 133, 136
77, 79 economic reforms, 1, 16, 27, 81
delivery mechanisms, 18 economic services, 165, 170, 171, 172,
delivery of services, 5, 20, 21 173, 174
democracy, 14, 19 economic slowdown, 188
demographic advantage, 14, 157 economic space, 119
demographic and biometric ecosystems management, 17
information, 20–1 education, 5, 7, 18, 21–2, 26, 119, 122
demographic characteristics, 24, 112 education facilities, 120
demographic dividend, 2, 14 education index, 122
demographic transformation, 157 efficiency, 10, 11, 20, 21, 81, 187
Department of Economic Affairs, 117 efficiency of the banking system, 187
deterministic components, 175, 177 elasticity of health expenditure to
developed economy, 14, 116, 157 output, 180, 184
developing countries, 130, 161, 162 elasticity of IMR to health
developmental expenditure, 165, expenditure, 180
170, 172 elasticity of IMR to SDP, 180
developmental programs, 4 elasticity of output to health
developmental projects, 29 expenditure, 180, 184
devolution of funds, 119 elasticity of SDP to IMR, 180
diminishing returns, 99 electricity, 19, 57, 112, 115, 119, 120,
direct cash transfers, 21 121, 122
discontent of the states, 6 electricity, gas and water supplies, 57
dispensaries, 159 empirical methodologies, 127, 174–9
dispersal of per capita output, 103 employment guarantee programme, 7
dispersal of per capita SDP, 109 endogenous, 180
Index 245
energy, 24, 82, 120 fixed-effect estimates, 105, 106,

Entropy Index, 91, 92 180, 202
Environment Ministry, 118 FMOLS estimates, 179, 180, 182, 183,
environmental clearance, 117 202, 203, 221
equity flows, 12 Food and Agriculture Organisation
European sovereign debt crisis, 9 (FAO), 84
evolution of inequality in forestry, 57
consumption and income, 109 forex, 12
execution of infrastructure projects, 114 The Fortune at the Bottom of the
expansionary policy, 8 Pyramid, 22
exports, 8, 9, 11–12 functional democracy, 19
external demand, 8, 9, 10, 23 fundamental right, 7, 21
external payments, 10, 11–12
externalities, 6, 14, 113, 117 game-changer initiatives, 2, 7,
extra-constitutional bodies, 6 18–23, 25
GCS, 28, 29, 31, 34–6, 37, 39, 42, 43,
factor cost, 189 45–7, 49–50, 51, 52–6, 85, 87, 90–1,
Faster, More Inclusive and Sustainable 92–3, 95, 98, 102, 103–4, 106, 108,
Growth, 5, 112 109–10, 113, 123, 125, 127, 129,
FDI, 12, 16, 24 130, 131, 133–5, 139, 150, 160,
federal governance, 16 163–5, 170–1, 180, 182, 184, 189,
federal setup, 6, 7, 18 193–6, 198–9, 200, 202, 203–5, 218
FII, 12 GCS category, 29, 37, 46, 50, 51, 53, 54
financial allocation, 29 GDP at factor cost at current
financial exclusion, 188 prices, 189
financial inclusion, 4, 22–3, 187, GDP growth, 6, 9, 12, 27, 30, 117,
188, 205 188, 190
financial scams, 24 general category states (GCS), 28,
financial services, 22, 188 29, 31, 34–6, 37, 39, 42, 43, 45–7,
financial system, 4, 22, 114, 187 49–50, 51, 52–6, 85, 87, 90–1,
financial viability, 117, 187 92–3, 95, 98, 102, 103–4, 106, 108,
first differences, 129, 180, 202 109–10, 113, 123, 125, 127, 129,
fiscal concessions, 11 130, 131, 133–5, 139, 150, 160,
fiscal deficit, 9, 10, 11, 163 163–5, 170–1, 180, 182, 184, 189,
fiscal discipline, 163 193–6, 198–9, 200, 202, 203–5, 218
fiscal laxity, 2, 9 general-purpose grant, 119
fiscal posturing, 12 generation of electricity, 121
fiscal priorities, 163 GER, 21
fiscal prudence, 12 gestation periods, 113
fiscal responsibility legislation Gini coefficient, 82, 91–2, 93–4,
(FRL), 163 95, 100
fiscal scenario, 11 Gini decomposition, 95, 96–7,
fiscal space, 8, 10, 180, 182 104, 109
fiscal stimulus package, 8 Gini of overall income, 94
fishing, 57 global economy, 16
Five year plan, 2, 4, 10, 11, 12, 14, Global financial crises, 6, 7, 11, 23,
16, 27–8, 112, 114, 115, 118, 158, 27, 55
159–60, 184 GMM estimates, 101–2, 106–8, 110,
fixed investment, 11 127, 129
246 Index
GMM estimator, 108 growth potential, 14, 17

Goa, 32, 34, 35, 40, 43, 46, 47, 51, 54, growth profile, 29
58, 60, 62, 64, 66, 68, 70, 72, 74, 76, growth projections, 2, 13
78, 85, 86, 87, 88, 107, 123, 124, growth rate, 1, 2, 8, 11, 12, 23, 27, 31,
125, 126, 131, 133, 134, 135, 140, 34–9, 55, 103–4, 125, 127, 225n6
163, 164, 165, 166, 168, 170, 171, growth sacrifice, 24
183, 193, 194, 196, 199, 200, 206, growth scenarios, 10
208, 210, 212, 214, 215, 216, 217, growth story, 2
221, 224n3 growth super cycle, 1
goods and services tax, 6 growth trajectory, 27, 112, 125
governance, 5, 9, 15, 16, 18, 19, 20 growth trigger, 10
governance-related issues, 9 growth outcome, 2, 14
government consumption, 8 growth-augmenting effect, 205
government expenditure on health, growth-enhancing effect, 188
158, 180 growth-inflation dynamics, 13
government failure, 130 growth-inflation trade-off, 12
government finances, 10, 11 growth-supporting policies, 2, 12
Gram Panchayat, 20 GST, 11
Granger causality, 175, 179 Gujarat, 32, 34, 35, 36, 39, 40, 43, 46,
grass-roots level financial 47, 50, 53, 54, 58, 60, 62, 64, 66, 68,
institutions, 187 70, 72, 74, 76, 78, 85, 86, 87, 88, 90,
gross advances, 13 107, 123, 124, 126, 131, 133, 134,
gross area under cultivation, 122 135, 165, 166, 168, 170, 183, 193,
gross fixed capital formation 195, 198, 206, 208, 210, 212, 214,
(GFCF), 9 215, 216, 217, 221
gross irrigated area, 122
group ADF statistics, 180, 202 harmonious growth, 7, 18
group statistics, 177 Haryana, 32, 34, 35, 36, 39, 40, 47,
group-mean Lagrange multiplier 53, 58, 60, 62, 64, 66, 68, 70, 72, 74,
statistic, 176 76, 78, 85, 86, 87, 88, 107, 123, 124,
growth acceleration, 34, 36, 37, 38, 125, 126, 131, 133, 134, 135, 165,
43, 44, 45, 194, 195–6 166, 168, 170, 183, 193, 194, 195,
growth dynamics, 2, 108 198, 206, 208, 210, 212, 214, 215,
growth elasticity, 161 216, 217, 221
growth euphoria, 2 HDI, 122
growth experience, 3, 27, 55 health, 3–4, 21, 82, 112, 119, 122,
growth momentum, 12, 31, 37, 52, 130, 157–86, 187, 225nn1,2
55, 195, 196 health equalization grants, 3
growth of sectoral GDP, 190 health expenditure, 4, 157, 159–61,
growth of the primary sector, 42, 44 162, 163–5, 170–5, 179, 180–4,
growth of the secondary sector, 42, 225nn1,2
43, 44, 55 health expenditure as a proportion of
growth of the services sector, 42, 195 SDP, 164–5, 172
growth of the tertiary sector, 42, 43, health facilities, 112, 120
44, 55 health infrastructure, 158, 164
growth performance at the state health outcomes, 3, 158, 160, 161,
level, 30 162, 163, 170, 180, 182, 183, 184
growth perspective, 7 health related absenteeism, 182
growth pessimism, 2, 7 health system, 159
Index 247
health-care spending across states, 163 Indian Union, 3, 163, 224

heterogeneous cointegrating indicative planning, 16–17
vectors, 177 Indira Awaas Yojana, 83
heterogeneity, 175, 177 indirect finance, 23
High Level Expert Group (HLEG), 159 individual cross-section effects, 106
high risks, 113 industrial credit, 190, 191, 193, 194,
high-growth phase, 31, 34, 35, 36, 42, 196–7, 198
43, 45, 47, 49, 55, 56, 85, 92, 93, industrial credit growth, 194, 196
184, 191 industrial growth, 194, 195, 197–8
Himachal Pradesh, 29, 33, 36, 37, 41, industrial revolution, 45
44, 48, 51, 59, 61, 63, 65, 67, 69, 71, industry, 46, 57, 190–1, 193–201,
73, 75, 77, 79, 86, 87, 89, 107, 124, 202–3
125, 126, 132, 136, 137, 138, 167, industry’s share in output, 200
169, 172, 173, 183, 196, 200, 201, inequality, 3, 81–111, 127,
207, 209, 211, 213, 214, 215, 216, 225nn1,2
217, 223 inequality across regions, 81
homogeneous time trends, 175 inequality in income, 3, 91
hospitals, 159, 164 inequality in per capita income, 92
hotel and restaurants, 57 inequality indices, 92
human capital, 100, 157 infant mortality rate (IMR), 3–4, 122,
157, 160, 161, 162, 170, 171, 174,
impact of output on credit, 202–3 179–82, 184, 225nn1,2
implicit prices, 84 inflation, 9, 10, 12–13, 24, 25, 115
imports, 11, 113 inflation rate, 12
incentive to save, 182 infrastructure, 2, 3, 5, 7, 8, 16, 18,
incidence of poverty, 22, 81 19, 20, 24, 25, 100, 112–56, 157–8,
inclusive growth, 10, 22, 81, 115 163, 188
inclusive growth strategy, 22 infrastructure and growth
income based inequality, 109 relationship, 112–56
income disparity, 28 Infrastructure Debt Fund (IDF), 118
income distribution, 91, 95, 161 infrastructure development, 20, 112
income inequality, 81–111, 127, infrastructure gaps, 5
225nn1,2 infrastructure index, 3, 112–13,
income mobility, 82, 87 118–25, 126, 127, 129, 139, 146,
income quintiles, 159 150, 154
income sources, 94–6 infrastructure projects, 16, 24, 113–14,
income spectrum, 3, 163 117–18, 130
incremental capital output ratio initial conditions, 99
(ICOR), 11 institutional capabilities, 112
index of backwardness, 5 institutional mechanism, 7, 14, 18,
index of concordance, 90, 109 24, 114
index of infrastructure, 118, 120 institutional structure of governance, 5
India insufficient policy action, 10
India Infrastructure Report, 114 Insurance companies, 116
India Super Cycle Report, 1 inter-dependence, 17
India Today, 119, 120 inter-district analysis of disparity, 28
India Today index, 119 interest rates, 9–10, 13, 24, 113, 187
Indian economy, 1, 8, 11, 12, 15, 27, intergovernmental resolutions, 16
29, 30, 188 inter-ministerial coordination, 117
248 Index
inter-ministerial ‘empowered Kakwani Index, 91–2

committee’, 117 Karnataka, 32, 34, 35, 40, 58, 60, 62,
internal security, 17 64, 66, 68, 70, 72, 74, 76, 78, 86, 87,
internal security threats, 17 107, 123, 124, 126, 131, 133, 134,
inter-sectoral credit growth, 194 135, 165, 166, 168, 183, 193, 196,
inter-state council (ISC), 14, 15–16, 198, 206, 208, 210, 212, 214, 215,
18, 224n2 216, 217, 221
inter-state differentials in Kerala, 32, 34, 35, 36, 39, 40, 43, 47,
infrastructure, 118 53, 58, 60, 62, 64, 66, 68, 70, 72, 74,
inter-state disputes, 16 76, 78, 85, 86, 87, 88, 107, 123, 124,
inter-state problems, 14 125, 126, 131, 133, 134, 135, 164,
inter-state relations, 2, 6, 7, 165, 166, 168, 170, 171, 183, 193,
13–18, 25 194, 195, 206, 208, 210, 212, 214,
inter-state river disputes, 25 215, 216, 217, 221
intertemporal mobility of states, 90 kerosene, 21
investment, 1, 8, 9–10, 11, 12, 13, 22, know your customer, 188
24, 27, 55, 99, 113, 114–15, 116,
117–18, 130, 157 lab technicians, 163
investment banks, 1 laboratory technicians, 158
investment growth, 13 labour force participation rate, 157
investment in infrastructure, 8, labour market, 25, 157
115, 117 labour productivity, 182
investment projects, 9, 10 lagged dependent variable, 106, 175
investment rate, 11, 27, 55, 99, 117 Lakadwala Committee report, 83
investment scenario, 9 Lakadwala methodology, 84
investment through PPP, 116–17, 130 land acquisition, 24, 117
investor confidence, 10, 12 large corporate business, 188
inward FDI, 12 length of railway tracks, 121
irrigation, 19, 115, 120, 122 length of roads of appropriate
irrigation potential, 19 quality, 121
length of runaways, 121
Jammu & Kashmir, 33, 36, 37, 41, less developed states, 4
44, 47, 48, 51, 54, 59, 61, 63, 65, level of significance, 39, 106, 110
67, 69, 71, 73, 75, 77, 79, 86, 89, 90, LLC, 175–6
107, 124, 126, 132, 136, 137, 138, life expectancy, 157, 161, 162
167, 169, 171, 172, 173, 183, 197, linguistic hostilities, 14
207, 209, 211, 213, 214, 215, 216, liquidity, 8, 12
217, 223 literacy rate, 122, 224n2
Jawaharlal Nehru National Urban livelihood, 18, 25
Renewal Mission (JnNURM), 20 LM tests, 176
Jharkhand, 32, 34, 35, 36, 39, 40, local area banks, 187
43, 46, 47, 51, 54, 58, 60, 62, 64, local governments, 5
66, 68, 70, 72, 74, 76, 78, 86, 87, log likelihood ratio tests, 129
88, 90, 107, 123, 124, 125, 126, logging, 57
131, 133, 134, 135, 164, 165, 166, Lokpal Bill, 24
168, 170, 183, 193, 194, 195, 200, long term debt, 118
206, 208, 210, 212, 214, 215, 216, longitudinal studies, 161
217, 221 long-run bidirectional causality,
job-guarantee scheme, 19 204, 205
Index 249
long-run causality, 179, 182, 184 manufacturing projects, 117

long-run effect, 127 market driven approach, 81
Lorenz Curve, 92 market failure, 130
low growth, 3, 29, 31, 34, 42, 43, 85, market forces, 16
189, 204 market process, 81
low productivity, 188 market share, 188
Low returns, 113 market-exchange rates, 1
LPG, 21 maternal health, 157
LPG connections, 120 mean independence, 91
LSDV estimates, 101, 102, 106, mega projects, 17
108, 110 Meghalaya, 33, 36, 37, 41, 44, 50, 51,
59, 61, 63, 65, 67, 69, 71, 73, 75, 77,
M. N. Venkatachaliah, 15 79, 86, 89, 90, 107, 124, 125, 126,
macro dimensions, 2 132, 136, 137, 138, 167, 169, 172,
macro scenario, 24 173, 183, 196, 199, 207, 209, 211,
macroeconomic aggregates, 127 213, 214, 215, 216, 217
macroeconomic challenges, 2, 6, 7, 12 Mehran Index, 91
macroeconomic concerns, 2 middle class, 2
macroeconomic management, 6, 7–13 middle-income trap, 2, 14
macroeconomic scenario, 27 millennium development goals, 157
Macroeconomif Framework, 10, 11 mining, 57
Madan Mohan Punchhi, 15 Ministry of Health and Family
Madhya Pradesh, 32, 34, 35–6, 39, 40, Welfare, 163
43, 46, 47, 50, 51, 54, 58, 60, 62, 64, Ministry of Rural Development, 82
66, 68, 70, 72, 74, 76, 78, 85, 86, 87, Ministry of Statistics and Programme
90, 107, 124, 125, 126, 135, 165, Implementation(MOSPI),
168, 170, 171, 183, 193, 194, 195, 119, 121
206, 208, 210, 212, 214, 215, 216, mixed recall period (MRP), 83
217, 222 Mizoram, 33, 36, 37, 41, 43, 44, 48,
Maharashtra, 32, 34, 35–6, 40, 46, 53, 50, 51, 54, 59, 61, 63, 65, 67, 69, 71,
54, 58, 60, 62, 64, 66, 68, 70, 72, 74, 73, 75, 77, 79, 86, 89, 90, 107, 124,
76, 78, 85, 86, 87, 88, 90, 107, 124, 125, 126, 132, 136, 137, 138, 167,
126, 131, 133, 134, 135, 163, 164, 169, 171, 172, 173, 174, 180, 181,
165, 166, 168, 183, 193, 194, 195, 182, 183, 185, 186, 196, 197, 199,
206, 208, 210, 212, 214, 215, 216, 201, 207, 209, 211, 213, 214, 215,
217, 221 216, 217, 223
Mahatma Gandhi National Rural Model Concession Agreements, 116
Employment Guarantee Act Mohan, Rakesh, 114
(MGNREGA), 18 Moily, M. Veerappa, 15
Manipur, 33, 36, 37, 39, 41, 43, 44, monetary and fiscal manoeuvrability, 8
47, 48, 50, 51, 54, 59, 61, 63, 65, 67, monetary and fiscal policies, 8
69, 71, 73, 75, 77, 79, 86, 89, 90, monetary policy, 8, 12, 13, 24
107, 124, 125, 126, 132, 136, 137, monetary stance, 9, 13
138, 167, 169, 172, 173, 174, 183, monthly per capita consumption
196, 197, 200, 201, 207, 209, 211, expenditure, 85
213, 214, 215, 216, 217 moral hazard, 119
manual work, 18, 19, 82 multi-agency architecture, 4
manufacturing, 42, 45, 46, 57, 104, multi-brand retail, 24
111, 117 multidisciplinary skills, 16
250 Index
Multi-purpose National Identity non-exclusive in consumption, 114

Cards, 20 non-institutional sources of credit, 22
municipal governance, 20 non-plan expenditure on health,
165, 172
Nagaland, 33, 36, 37, 41, 44, 47, 48, non-plan health expenditure, 170, 173
51, 54, 59, 61, 63, 65, 67, 69, 71, 73, non-rival, 114
75, 77, 79, 86, 89, 90, 107, 124, 125, non-stationarity, 175
126, 132, 136, 137, 138, 167, 169, non-stationary processes, 176
172, 173, 180, 181, 182, 185, 186, non-tradability, 113
196, 197, 198, 199, 201, 207, 209, north east region, 25
211, 213, 214, 215, 216, 217, 223 North Eastern Council, 14
National Commission for Enterprises in North Eastern Council Act of 1972, 14
the Unorganized Sector (NCEUS), 82 NRHM, 158
National Commission to Review the NSS surveys, 159
Working of the Constitution, 15 NSSO, 83, 84
National Development Council, null hypothesis, 90, 175–6, 178,
6, 16 179–80, 202
national income, 30, 161 number of berths at ports, 121
National Integration Council, 28, number of telephone connections, 121
224nn1,2 nutrition, 161
National Investment Board (NIB), 118
national parties, 17 Odisha, 32, 35, 39, 40, 46, 53, 54,
National Population Register, 20 58, 60, 62, 64, 66, 68, 70, 72, 74,
National Rural Employment 76, 78, 85, 86, 87, 88, 90, 107, 123,
Guarantee Act (NREGA), 18 124, 125, 126, 131, 133, 134, 135,
National Statistical Commission, 165, 166, 168, 170, 171, 183, 193,
119, 121 194, 195, 198, 199, 206, 208, 210,
nationalized banks, 13 212, 214, 215, 216, 217, 222
natural resources, 24, 112 official estimations of poverty, 83
Naxalism, 24 official poverty estimates, 85, 109
NBFCs, 116 oil and gas pipelines, 115
NDC, 6, 7, 18 OLS model, 127
negative externalities, 6 operations risks, 113
neoclassical growth model, 99 overall inequality, 98
NER, 21, 122 overall infrastructure index, 122, 123,
Net enrolment ratio, 122 125, 127, 139, 146
New Delhi, 28, 33, 38, 39, 44, 45, 48, overdraft facilities, 23
51, 54, 59, 61, 63, 65, 67, 69, 73, 75, ownership of dwellings, 57
77, 79
new economic policy, 16 pani (water), 119
no-frill account, 187 Panchayati Raj Institutions
no-frills basic banking account, 22 (PRIs), 5
nominal GDP, 9 Panchayati Raj System, 16, 17
nominal interest rates, 13 panel cointegration, 175, 177–8, 179,
non stationary panel, 202 180, 186, 202, 220
non-budgetary funds, 116 panel data models, 127
non-debt-creating inflows, 12 panel FMOLS, 174, 178, 179
non-developmental expenditure, panel OLS, 178
170, 173 panel statistics, 177
Index 251
panel unconditional convergence plan component of health

estimations, 104 expenditure, 166, 168, 170
panel unit root tests, 175–6, 179, 185, plan schemes, 16
202, 218, 219 planned development, 1, 28, 29,
panel variance statistic, 178 170, 173
partnerships, 16 planned development expenditure,
PCI differential, 85 170, 173
Pearson’s correlation coefficient, 39 planned health expenditure, 170, 173
People-Public-Private planning, 4, 6, 16, 17, 22, 28, 30, 113,
Partnerships(PPPPs), 116, 117, 130 114, 130
per capita consumption expenditure, Planning Commission, 7, 20, 27–9,
83, 85 83, 85, 117, 159
per capita development expenditure, planning documents, 4
168, 170, 171, 173, 174 policy Iogjam, 10, 11
per capita electricity consumption, 122 policy prioritisation, 189
per capita expenditure, 164, 165, 168, policy rates, 8, 9, 13
170, 171, 173, 174 policy stasis, 2, 11, 24, 27
per capita expenditure on economic political configuration, 18
services, 168, 171, 174 political consensus, 11
per capita expenditure on social political economy, 2, 18
services, 168, 170, 173 political environment, 24, 112
per capita GDP, 30 political expediency, 25
per capita GDP growth, 30 Pondicherry, 33, 38, 39, 44, 45, 48,
per capita growth, 31, 35, 93, 51, 52, 59, 61, 63, 65, 67, 69, 73, 75,
165, 173 77, 79
per capita income (PCI), 39–42, 82, pooled Augmented Dickey-Fuller for
85–91, 92, 99, 102, 109 ADF test, 176
per capita road length, 120 pooled OLS estimate, 175
per capita SDP, 31, 100, 102, 103, 109, pooled panel estimate, 175
165, 170, 173, 179 population, 3, 5, 14, 23, 29, 30–9,
per capita SDP growth, 31, 34–41, 55, 52–4, 56, 57, 74–7, 82, 84, 99, 157,
165, 168, 172–4 159, 160, 163–5, 168, 173, 184, 187,
per capita social sector expenditure, 188, 190, 224nn2,3, 225n6
171, 174 population growth, 30, 31, 34–9, 53,
per capita health expenditure, 164, 54, 99, 165, 168, 173, 225
165, 170–4, 179 population growth rate, 31, 37, 38
per capita total expenditure, 165, 168, population share, 52
171, 173, 174 portable UHC, 159
percentage of homes with ports, 115, 121
electricity, 120 positive externalities, 117
percentage of villages connected with post-crisis period, 11, 14, 24, 31, 34–7,
pucca roads, 120 42, 43, 47, 49, 55, 85, 91–4, 103,
personal loans, 191, 192 106, 109, 189–91, 204
pharmacists, 158, 163 post-offices, 120
PHCs, 157, 158, 164 post-reform period, 3, 4, 27, 82, 83,
Phillips-Perron (PP) methods, 177 90, 101, 162
physical and social infrastructure, 5 poverty, 22, 81–5, 109, 159,
physical infrastructure, 24, 115, 157 161, 188
Pigou-Dalton transfer sensitivity, 91 poverty threshold, 83
252 Index
poverty-line bundle of goods and public spending on health, 158,

services, 84 159–60, 162–3, 180, 182, 184
power projects, 9 public village telephones, 20
PPP investment, 130 public-private partnership (PPP), 1,
PPP market, 116 20, 82, 116, 117, 130
PPP schemes, 116 Punjab, 32, 35, 36, 39, 40, 43, 46, 54,
PPPAC, 117 58, 60, 62, 64, 66, 68, 70, 72, 74, 76,
price pressures, 24 78, 86, 87, 88, 90, 107, 123, 124,
price stability, 12–13 125, 126, 131, 133, 134, 135, 164,
primary growth sector, 42–5, 49, 55, 56 165, 166, 168, 170, 183, 193, 194,
primary sector, 42–50, 55–6, 57, 93–5, 195, 198, 199, 200, 206, 208, 210,
98–9, 103, 104, 106, 108–10 212, 214, 215, 216, 217, 222
primary sector’s share, 46
prime minister, 2, 10, 11, 14, 24, qualitative dimension of the social
116–18, 224n2 infrastructure index, 123–6
principal component analysis, 120, 122 qualitative infrastructure index, 124,
priority sector advances, 23 150–6
priority sector lending, 118 quality of growth, 7
private sector, 16, 20, 113–16, 130, quarrying, 57
158, 163 quinquennial surveys, 81
private sector involvement in
infrastructure investment, 114 Rajamanar, P.V., 15
production, 4, 24, 118, 205 Rajasthan, 32, 34, 40, 43, 46, 47, 50,
productivity, 5, 24, 127, 157, 161, 54, 58, 60, 62, 64, 66, 68, 70, 72, 74,
182, 188 76, 78, 85, 86, 87, 88, 107, 124, 125,
professional credit, 191 126, 131, 133, 134, 135, 165, 166,
pro-growth, 10, 182, 184 168, 170, 183, 193, 194, 195, 198,
pro-people, 184 199, 200, 206, 208, 210, 212, 214,
Provision of Urban Amenities in Rural 215, 216, 217
Areas (PURA), 20 Rakesh Mohan Committee, 114
provisioning requirements, 8 range of growth, 34, 36–8
prudential measures, 8 range of population growth, 38–9
prudential norms, 116 rank analysis, 82, 87–91, 109
public administration, 57 rank disagreement, 90
Public Distribution System, 21 rankings, 39–42
public expenditure, 3, 160, 161, 182 rankings based on growth and level, 39
public finances, 11 rankings based on growth of PCI,
public good, 113, 114, 130 39–42
public good character, 114 rankings based on levels of PCI, 39–42
public good characteristics, 113, 130 ranks, 87, 90, 109
public health expenditure, 159, 161, rapid growth, 3, 29, 191
162, 184 Rashtriya Sam Vikas Yojana (RSVY), 4
public monopoly, 113 rating downgrade, 10, 24
public policy, 20, 162, 184 rating outlook, 10
Public Private Partnership Appraisal ration shops, 83
Committee (PPPAC), 117 RBI, 8, 9, 23, 57
public sector banks (PSBs), 13, 116 real estate, 8, 57
public spending, 81, 158, 159–60, real GDP, 10, 188, 189
162–3, 180, 182, 184 real interest rates, 10, 13
Index 253
real-sector, 9, 10, 13 rural development, 17, 20, 82

real-sector issues, 13 Rural Health Statistics (RHS), 157, 163,
red corridor districts, 24 181, 203
reforms, 1, 4, 10, 16, 20, 27, 81 rural hinterland, 4
regional disparity, 4–5 rural infrastructure, 7, 19, 20, 118
regional economic performance, 28 rural labour market, 25
regional equality, 4 rural poverty ratio, 84
regional equity, 4 rural residents, 159
regional growth dynamics, 2, 29 rural–urban price differential, 84
regional imbalance, 4
regional inequality, 4, 82 sadak (road), 119
regional parties, 17 sales tax, 6
Regional Rural Bank (RRB), 4, 22, 187 Sarkaria Commission, 15
regionally inclusive development Sarva Shiksha Abhiyan (SSA), 21
strategy, 112 savings, 9, 22, 26, 54, 157
registered manufacturing, 57 savings rate, 157, 182
Registrar General of India, 20 Saxena Committee, 82
regressand, 106 SC/ST population, 5
regulated interest rates, 187 schools, 21, 112
regulatory burden, 2 SCS, 28–9, 31, 33, 34, 36–8, 39,
regulatory dictates, 188 41–7, 49, 50–7, 59, 61, 63, 65, 67,
relative income position, 90, 109 69, 71, 73, 75, 77, 79, 80, 86, 87,
reproducible capital, 99 89–96, 98–9, 101–11, 113, 123,
resource allocation, 16 125, 128–30, 136–8, 163, 166, 169,
resource sharing, 24 171–4, 180–6, 189, 193, 196–205,
resource-use efficiency, 11 207, 209, 211, 213–17, 220–23
response of output to credit, 190 SCS Category, 36, 37, 42, 50, 53,
responsiveness of aggregate credit to 54, 113
SDP, 202 SDP, 29, 31–40, 43–50, 52–8, 60, 62,
responsiveness of credit to output, 64, 74, 78, 93, 94, 96–7, 102–11,
189, 202, 205 122, 127, 129, 130, 133–8, 164–6,
responsiveness of output to credit, 168, 170–5, 179–86, 200–4, 206,
189, 202, 203, 205 208, 210, 212, 221, 222
responsiveness of output to aggregate SDP growth, 31, 34–9, 43–5, 53–5,
credit, 202 133–8, 165, 168, 172, 206, 208,
restructured advances, 13 210, 212
restructured assets, 13 second ARC, 15
review of literature, 160 secondary sector, 42–51, 55–7, 93, 98,
RHS Bulletin, 163 99, 102, 103, 106, 108–10
RIDF bonds, 118 second-generation reforms, 9–10
Right of Children to Free and sectoral composition of credit, 198,
Compulsory Education (RTE) Act, 199, 201
21, 22 sectoral composition of output,
Right to Information Act (RTI), 19 190, 200
risk weights, 8 sectoral growth, 42, 58–65, 197,
river water disputes, 17 225n6
road connectivity, 112 sectoral growth performance, 29, 42–8
RRBs, 4, 22, 187 sectoral income, 104, 106, 110
rural areas, 20, 82–5, 158, 159, 163 sectoral pattern of inequality, 94
254 Index
semi log specification, 30, 33 social infrastructure index, 122, 123,

service-led economy, 45 125, 129, 139, 140, 142, 144, 146,
service-led growth, 45 148, 150, 152, 154, 156
services credit, 190, 191, 193, 194, Social Quality Infrastructure Index, 122
196–9 social security system, 18
services credit growth, 196, 197 social services, 165, 166, 168, 170,
services sector, 10, 42, 49, 190, 191, 172, 173
193–8, 201, 204 social space, 119
services sector growth, 195, 197, 198 socioeconomic development, 14
servicing of loans, 13 Solow model, 99, 101
share of agriculture in SDP, 199–201 source Gini, 95
share of agriculture in total credit, southern region, 25
198, 199 sovereign debt crisis, 9
share of industrial credit, 198 spatial analysis of growth, 28
share of industry, 46, 191, 200, 201 spatial dimension, 29
share of industry in total credit, spatial dispersion of per capita
198–9 output, 102
share of secondary sector, 46, 47 spatial growth literature, 3
share of services credit, 198 special area programmes, 4
share of services in total credit, 199 special category states, 28–9, 31,
share of services in the SDP, 200 33, 34, 36–8, 39, 41–7, 49, 50–7, 59,
share of the primary sector, 61, 63, 65, 67, 69, 71, 73, 75, 77,
46–9, 55 79, 80, 86, 87, 89–96, 98–9, 101–11,
share of the secondary sector, 113, 123, 125, 128–30, 136–8, 163,
46–8, 55 166, 169, 171–4, 180–6, 189, 193,
share of the services sector in the total 196–205, 207, 209, 211, 213–17,
credit, 191 220–23
share of the tertiary sector, 45–8 specialist doctors, 163
shares in combined SDP and speed of convergence, 100, 106,
population, 52–3 108, 110
short-run causality, 179, 180, 182 sponsor bank, 187
sigma (σ) convergence, 99, 101, 102 stability of growth, 29, 50, 52
Sikkim, 33, 36, 37, 38, 39, 41, 44, 47, Standard Charted Bank, 1
48, 50, 51, 53, 59, 61, 63, 65, 67, 69, standard deviation of fixed effects,
71, 73, 75, 77, 79, 86, 87, 89, 90, 106, 110
124, 125, 126, 132, 136, 137, 138, standard deviation of log of IMR,
167, 169, 171, 172, 173, 183, 196, 171, 174
197, 199, 200, 201, 207, 209, 211, standard deviation of log of per capita
213, 214, 215, 216, 217 SDP, 102, 170, 174
Sir Joseph Bhore Committee, 163 standard deviation of logarithm of
SME, 188 SDP per capita, 102
social, 3, 5, 18, 20, 24, 25, 81, 100, standard deviation of the sectoral
112, 113, 116, 118–20, 122, 123, dispersion of output, 102
125, 127, 129, 130–2, 134–56, 158, standard loans, 8
163, 165–74, 224n2 standard normal distribution, 175
social fabric, 81 standard OLS, 180, 202
social infrastructure, 5, 113, 116, State Bank of India, 13
118, 119, 123, 125, 127, 129, 130, State Domestic Product (SDP), 29,
134, 137 31–40, 43–50, 52–8, 60, 62, 64, 74,
Index 255
78, 93, 94, 96–7, 102–11, 122, 127, telephones, 19, 20, 121
129, 130, 133–8, 164–6, 168, 170–5, Tendulkar, Suresh D., 83–4
179–86, 200–4, 206, 208, 210, 212, Tendulkar Committee, 84
221, 222 tertiary sector, 42–52, 55–7, 93, 94, 98,
state-led planning, 114 102, 103, 106, 108, 109, 122
States Reorganization Act of 1956, 14 tertiary sector’s contribution to
stationary, 129, 175, 176 growth, 50
stationary in levels, 129 Theil Index, 91–3
steady-state income, 99, 101, 102, Thirteenth Finance Commission, 3
104, 106–8 three-tier structure, 16
steering committee on health for the time and cost overruns, 116
12th five-year plan, 159 time dummies, 161
stocks, 11, 99 time overruns, 114, 116
storage, 57, 115 time series, 175, 177
strong inclusive growth, 10 total expenditure as proportion of
structural breaks, 100 SDP, 165, 172
structural characteristic, 11 total fertility rates, 161
structural composition of output, 3 total health expenditure, 160,
structural features, 24 164, 172
structural imbalance, 12 total road length, 122
structural transformation, 45 trade, 7, 12, 57, 191–3, 206–13
structure of economic activity, 100, 122 trade credit, 191, 193
Structured Financing option, 114 trade, finance and confidence
sub-centres, 157 channel, 7–8
sub-district, 5 trade loans, 191
sub-periods, 29, 30, 34–9, 42, 45–57, transmission of electricity, 121
87, 90, 91, 92, 94, 100, 101, 106, transparency in pricing, 187
109, 189, 191, 193–201, 204 transport, 57, 120, 192, 206–13
subsidies, 7, 11, 21, 24, 26, 83, transport facilities, 120
116, 188 trend stationary, 175
supply constraints, 10 Tripura, 33, 36, 37, 38, 41, 43, 44, 51,
supply response, 13 54, 59, 61, 63, 65, 67, 69, 71, 73, 75,
supply-side pressures, 10 77, 79, 86, 87, 89, 90, 107, 124, 126,
supra district, 5 132, 136, 137, 138, 167, 169, 172,
surfaced road length, 122 173, 183, 196, 197, 198, 199, 207,
survival index, 122, 139–56 209, 211, 213, 214, 215, 216, 217
survival rate, 122 Twelfth Finance Commission, 3
sustainable growth, 5, 10, 12, 112 two-stage least squares, 161
sustainable livelihoods, 25 two-way fixed effects model, 101, 104,
symmetry, 91 110, 127–9, 175
Tamil Nadu, 6, 15, 32, 34, 35, 36, 40, underdeveloped countries, 162
43, 46, 47, 53, 58, 60, 62, 64, 66, 68, under-five mortality rate, 157
70, 72, 74, 76, 78, 85, 86, 87, 88, uni-directional causality from output
107, 123, 124, 125, 126, 131, 133, to credit, 204
134, 135, 167, 169, 183, 193, 194, uniform recall period (URP), 83
195, 196, 200, 206, 208, 210, 212, Unique Identification Authority of
214, 215, 216, 217 India (UIDAI), 20–1
targeting of government spending, 7 unit root in panel data, 175
256 Index
United Nations, 22 variability of total output, 50

United States, 1, 125, 161 viability gap funding (VGF)
unit-specific fixed effects, 175 scheme, 117
universal health coverage volatility of the secondary sector’s
(UHC), 159 output, 51
Universalization of Elementary volatility pattern, 50, 51
Education (UEE), 21
unregistered manufacturing, 57 wage employment, 18
upper primary level, 21, 122 welfare implications, 52
urban areas, 23, 82, 84, 85, 159 welfare of the people, 109
urban poverty ratio, 84 welfare programme, 24
urban residents, 159 welfare schemes, 7, 83
Uttar Pradesh, 32, 35, 39, 40, 43, 47, welfare state, 184
54, 58, 60, 62, 64, 66, 68, 70, 72, West Bengal, 32, 34, 35, 40, 43, 53,
74, 76, 78, 86, 87, 88, 90, 107, 123, 58, 60, 62, 64, 66, 68, 70, 72, 74, 76,
124, 126, 131, 133, 134, 135, 164–5, 78, 86, 87, 88, 107, 123, 124, 126,
167, 169, 170, 171, 183, 193, 194, 131, 133, 134, 135, 165, 167, 169,
200, 206, 208, 210, 212, 214, 215, 170, 183, 193, 194, 196, 198, 200,
216, 217 206, 208, 210, 212, 214, 215, 216,
Uttarakhand, 33, 36, 37, 38, 41, 43, 217, 222
44, 50, 51, 53, 54, 59, 61, 63, 65, 67, Working Group on Growth and
69, 71, 73, 75, 77, 79, 86, 87, 89, 90, Development at the Sub-national
107, 123, 124, 125, 126, 132, 136, Level for the 12th Plan, 112, 121
137, 138, 167, 169, 172, 173, 183, Working Sub Group on
197, 207, 209, 211, 213, 214, 215, Infrastructure for the 12th
216, 217 Five-Year Plan, 115
UTs, 31, 33, 38–9, 42, 44–5, 46, 48–57, World Bank, 21, 82, 116, 130
59, 61, 63, 65, 67, 69, 73, 75, 77, 79, world economy, 27
80, 224n2 world GDP, 1
World Health Organization, 160
variability in the tertiary sector
output, 51 X-ray technicians, 163
variability of the primary sector
output, 50 zonal councils, 14, 15, 18
variability of the secondary sector’s
output, 51 σ-divergence, 99, 101, 102

Revisiting Regional Growth Dynamics in India in The Post Economic Reforms Period

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Revisiting Regional Growth Dynamics in India

in the Post Economic Reforms Period

ISBN 978-1-349-45426-6 ISBN 978-1-137-30368-4 (eBook)

List of Abbreviations xix

Annex 3.12 Variability in sectoral output 78

5 Infrastructure and Growth 112

Annex 5.11 Infrastructure Index with qualitative

6 Health and Growth 157

7 Credit and Growth 187

Annex 7.11 Panel cointegration tests 220

3.1 Growth of the Indian economy 30

7.2 Average shares of major sectors in output and

4.1 Evolution of Gini coefficient – GCS 93

This book is a sequel to Regional Growth Dynamics in India in the Post

investment as well as to improve the productivity and quality of infrastruc-

Recognising the important role that banks have played in supporting

I am grateful to my employer, Xavier Institute of Management,

I am thankful to my students – Amit, Prateek, Pratik, Shubhodeep,

A&N Islands Andaman and Nicobar Islands

GSDP Gross State Domestic Product

RHS Rural Health Statistics

India’s economy at present is characterized by subdued growth perform-

Notwithstanding the recent dip, India’s growth in the post-2000

whether the health expenditure is really effective in making a dent in

Approach to addressing regional disparity

backward districts – on the basis of an index of backwardness comprising

As alluded to in the Introduction, this chapter has three broad themes.

as the Planning Commission and mechanisms such as the NDC. The

2.1 Macroeconomic management

and confidence channel as growth decelerated to 6.8 per cent in

suggests a negative association between growth and inflation, it does

2.2 Centre–state and inter-state relations

paper to the 12th five-year plan. India aspires to be a developed

Besides the mechanism of zonal councils, the Constitution of India

accorded it a key role in its seven-volume report presented to govern-

priorities of the nation. Under indicative planning states get a larger

2.3 Game-changer initiatives

A novel feature of this job-guarantee scheme is that it is demand driven

upgraded; and considerable progress in the provision of safe drinking

information of the resident and can be used for identification as well as

elementary level, school attendance has been particularly low in the

basic banking facilities in a transparent manner, with reasonable service

package aimed at increasing investment to protect demand. India, on

region; inter-state river disputes in the southern region; relatively poorer

India achieved higher growth rates after embracing economic reforms in

funds released by the Planning Commission for planned development.

regions in different time periods. Concluding observations based on the

3.1 Growth performance

Before we embark upon an analysis of growth performance at the state

Table 3.1 Growth of the Indian economy (Per cent)

Period GDP Per capita GDP Population

1900–1 to 1946–47 1 0.2 0.8

period compared to the high-growth phase. Only the SCS posted an

As far as population growth in the SCS is concerned, during 2000–3

increased in the successive two sub-periods compared to 2000–3. Sikkim,

at faster rate during 2009–12 compared to 2004–8. The range of popu-

Ranking on the basis of level and growth of PCI

compared to 2000–3 and four states in 2009–12 compared to 2004–8

3.2 Sectoral growth performance

Sectoral growth across states

Growth of the secondary sector improved in the 2004–8 period

Between agriculture and manufacturing, we find the share of the

Uttar Pradesh – the share of secondary sector further increased during